INDIA BONDS-Indian bond yields dip as lower US inflation triggers rise in Treasury prices

By Dharamraj Dhutia

MUMBAI, June 13 (Reuters) - Indian government bond yields declined on Thursday, as U.S. Treasury prices jumped after softer-than-expected U.S. inflation print boosted bets of rate cuts, despite the Federal Reserve projecting only one cut this year.

India's benchmark 10-year yield ended at 6.9872%, following its previous close of 7.0121%.

U.S. yields dropped and stayed around the 4.30% level as inflation data showed consumer prices were unchanged month-on-month in May, following a 0.3% increase in April and below the 0.1% estimate.

For the 12 months through May, U.S. inflation advanced 3.3% versus 3.4% in April and a similar market expectation.

The Fed said the 2% inflation goal was likely to be achieved at a slower pace than previously expected and slashed its forecast to only one 25-basis-point rate cut in 2024, down from three cuts forecast in March.

The futures markets, however, ignored the Fed's hawkish guidance, and are currently pricing in 44 bps of cuts in 2024, with the odds for such an action in September rising to 61% from 53%, according to the CME FedWatch tool.

"Given current conditions, the earliest the Fed rate cut cycle could start from is September. The Fed will have three more CPI prints by the September policy to assess the durability of the disinflation process. The April and May CPI prints have shown some moderation," said Gaura Sen Gupta, chief economist at IDFC First Bank.

Back home, India's retail inflation rate eased slightly in May to 4.75% from 4.83% in April, lower than the 4.89% forecast in a Reuters poll.

Still, investor uncertainty likely curbed the fall in Indian bond yields.

Investors are likely to wait for clarity on India's fiscal consolidation path in the forthcoming government budget before propelling the next leg of a bond market rally, Aditya Bagree, head of markets at Citi India. (Reporting by Dharamraj Dhutia; Editing by Janane Venkatraman )