MUMBAI: Indian government bond yields are expected to trade little changed at the start of the week, amid consolidation around the current levels, while traders await fresh triggers for a further downmove.
The benchmark 10-year yield is likely to move in a 6.98%-7.02% range on Monday, following its previous close of 6.9988%, a trader with a state-run bank said.
“With the benchmark already around 7%, we may not see an easy move towards 6.95%, and there could some sort of tug of war between the buyers and sellers around these levels, and even US yields have firmed up slightly,” the trader said.
Bond yields fell for fifth consecutive week, after the Reserve Bank of India’s board approved the transfer of a record 2.11 trillion rupees ($25.40 billion) as surplus to the government for fiscal 2024.
The government’s fiscal position is expected to strengthen after a better-than-estimated dividend transfer and could further reduce some supply pressure, aiding the demand-supply dynamics, traders said.
New Delhi has already cut the supply of Treasury bills by 600 billion rupees till June, and has conducted buyback of securities worth around 179 billion rupees in May.
India bonds not reacting to strong domestic growth, yields little changed
According to multiple sources, the government is open to buying back more bonds and cutting T-bill supply for short-term cash management, while decision on lowering fiscal deficit and market borrowings will be taken after formation of a new government.
US yields ended higher in the previous week, with the 10-year yield nearing the 4.50% mark, while the two-year yield nearing the 5% mark, as data and commentary from the Federal Reserve have once again pared rate cuts bets for 2024.
Futures markets are now pricing only around 34 basis points of rate cuts this year, as compared to over 50 bps earlier in the month, according to CME FedWatch Tool.
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