MUMBAI, May 2 (Reuters) - Indian government bond yields trended lower on Thursday tracking U.S. yields, after the Federal Reserve maintained the narrative that it hopes to cut rates, while ruling out further rate hikes.
The benchmark 10-year yield was at 7.1643% as of 10:00 a.m. IST, following its previous close of 7.1855%.
"There have been no surprises from the Fed, and even the commentary seems to be largely similar, but the fact that they are still eyeing rate cuts has supported Treasuries, and should lead to some intermittent buying locally," the trader said.
U.S. yields eased on Wednesday after the Fed decision, in which the central bank maintained interest rates as expected but sounded less hawkish, even as Jerome Powell said it "will take longer than previously expected" for policymakers to become comfortable that inflation will resume the decline towards 2%.
The 10-year yield was around the crucial 4.60% mark, while the two-year yield, a closer indicator of interest rate expectations, was around 4.95%.
Investors continue to price in the possibility of around 35 basis points (bps) of rate cuts in 2024, unchanged from before the Fed decision, but sharply lower from the more-than-150-bps expected at the start of 2024, according to CME's FedWatch Tool.
However, the odds of a rate cut in September have now gone up to 56% from 45% before the decision.
Barclays has retained its call that the Fed will deliver just one 25 bps rate cut in 2024 in September at the soonest, but if inflation is stronger than baseline, it expects the cut to be postponed to December.
The market sentiment was also supported as oil prices tumbled, with the Brent crude futures dropping below $85 per barrel on a surprise pick up in U.S. crude stocks and the prospect of a Middle East ceasefire agreement that could smoothen supply.
Elevated oil prices had added nervousness over the last few days as they have a direct impact on India's retail inflation. (Reporting by Dharamraj Dhutia; Editing by Janane Venkatraman )
