MUMBAI, Aug 5 (Reuters) - India government bond yields fell in early trade on Monday tracking a sharp decline in U.S. peers after the world's largest economy showed signs it may be headed for an economic slowdown, raising bets of aggressive rate cuts.
The benchmark 10-year yield was at 6.8597% as of 10:25 a.m. IST, lowest level since Mar 31, 2022, compared with its previous close of 6.8945%.
"Domestic bond yields will await more clarity on rate action by the Reserve Bank of India even as the U.S. Fed rate cut next month is a done deal and broader sentiment remains weak on worries over growth," a trader at a foreign bank said.
U.S. Treasury yields nosedived on Friday after data showed the world's largest economy created fewer jobs than expected in July and the unemployment rate rose, boosting bets of aggressive rate cuts by the Fed.
The U.S. 10-year yield dropped to the lowest level since December on Friday and extended decline in Asian hours on Monday. It was last at 6.7565% in Asian hours, while 2-year yield was at 3.8216%.
The U.S. unemployment rate jumped to near a three-year high of 4.3% in July amid a significant slowdown in hiring, heightening fears the labour market was deteriorating and potentially making the economy vulnerable to a recession.
Markets are now anticipating 115 bps of cuts this year, with traders pricing in 75% chance of the Fed lowering rates by 50 bps in September compared with an 11.5% chance a week earlier, according to CME FedWatch tool.
Back home, the RBI is expected to keep rates steady for a ninth straight meeting this week due to persistently high inflation, with a slim majority of economists in a Reuters poll expecting the first cut next quarter. (Reporting by Bhakti Tambe; Editing by Nivedita Bhattacharjee)
