(Reuters) - India's government bond yields ended higher on Thursday after U.S. Federal Reserve Chairman Jerome Powell took a hawkish stance and said interest rate hikes would continue for a longer period than markets expected.
The benchmark 10-year yield ended at 7.2676%, after closing at 7.2218% on Wednesday. The yield had eased by 8 basis points (bps) in the last three days.
The Federal Open Market Committee (FOMC) hiked policy rates by 50 bps on Wednesday, along expected lines, after four straight 75-bps hikes.
"The FOMC is decisively seen moving ahead towards a higher terminal rate of about 5.00%-5.25% through 2023," said Siddharth Kothari, economist with Sunidhi Securities and Finance.
"We believe that while the pace of Fed rate hikes may reduce to 25 bps in 2023, the firmness in core personal consumption expenditure and incremental Fed funds rate hikes are likely to move the U.S. yield curve higher with a shorter end on elevated trajectory," Kothari added.
Most market participants now expect the Reserve Bank of India to pause after one more hike of 25 bps in February, after raising rates by 225 bps since May to 6.25%.
However, rate cuts in the U.S. seemed unlikely in the near future after Powell's comments focusing on controlling inflation, without being deterred by the possibility of an impeding recession, said a dealer with a private bank.
Some market participants also placed short bets ahead of the central government's debt auction on Friday. New Delhi will aim to raise 300 billion rupees through bonds, which includes the sale of a new 14-year bond.
