MUMBAI: Indian government bond yields are expected to be largely unchanged in the early session on Friday, as yet another record state debt supply is likely to offset the rate-cut optimism.
The benchmark 10-year yield is likely to trade in a 7.03%-7.07% range, following its previous close of 7.0477%, a trader with a private bank said.
“The unprecedented supply from states is expected to dampen bullish sentiment that was triggered since yesterday, so any major fall in benchmark from this point may not happen and could see some consolidation around 7.05% levels,” the trader said.
Indian states are expected to raise a record 600.32 billion rupees ($7.21 billion) through the sale of bonds on Tuesday.
They raised 502.06 billion rupees earlier this week and followed it up with another auction on Thursday, where they raised 240 billion rupees. If realised, the gross supply from states for the current financial year would cross 10 trillion rupees for the first time ever.
Meanwhile, US yields have turned choppy with the 10-year yield back above 4.25%, after the release of strong economic data, including a report showing a drop in new claims for unemployment benefits.
Strong data and elevated inflationary pressures have kept the markets worried over the timing and extent of rate cuts, even though the US Federal Reserve maintained its outlook for three rate cuts in 2024 at the end of its policy meeting earlier this week.
The Fed left the benchmark overnight interest rate in the 5.25%-5.50% range.
Fed comfort on 2024 rate cuts cools Indian bond yields
The odds of a cut in June have risen to 75% from 59% before the central bank’s decision, according to the CME FedWatch tool.
A surprise rate cut from the Swiss National Bank, making it the first major central bank to dial back tighter monetary policy conditions, also boosted sentiment on Thursday.
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