The FOMC cut its benchmark rate by 25 bps (bringing the benchmark rate to a targeted range between 3.75% to 4.00%), while also pulling back from its quantitative tightening programme following concerns around short term funding for select banks. The decision on rate easing was not unanimous, with one member voting for 50 bps easing, while another voted in favour of no change in rates. Policy easing was largely along expected lines. However, treasury yields edged higher after Fed chair Powell noted that a further reduction in interest rate in the upcoming meeting in December was not a “foregone conclusion”. This cautious approach was adopted given a clouded economic outlook given the ongoing government shutdown, and a limited set of economic indicators available. The yields moved higher, and these were more pronounced in the near end of the curve (rate sensitive segment).

From Indian bond markets perspective, focus now shifts to trade negotiations between India and the US, extent of INR depreciation, and RBI’s liquidity management approach (given an increased talk around a possibility of the central bank doing OMO purchases to allow the yield curve lower and support bank deposits growth).

Naval Kagalwala, COO & Head of Products, Shriram Wealth Ltd.