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May 30, 2024

Indian Government Bond Yields Set to Rise in Tandem with US Treasuries

Indian government bond yields are anticipated to follow the upward trajectory of US Treasury yields in early trading on Thursday. This shift comes as the market closely observes the response to the fourth buyback of government securities scheduled for this month.

The benchmark 10-year Indian government bond yield is expected to fluctuate within a range of 7.00% to 7.04%, following its previous close at 7.0129%, according to a trader from a state-run bank. “In the last two weeks, the 10-year US yield has surged by 30 basis points. Despite strong domestic fundamentals, Indian bonds are likely to face selling pressure today,” the trader remarked.

US Treasury yields have been rising due to weak demand for new auctions and recent comments from Minneapolis Federal Reserve Bank President Neel Kashkari. In a recent interview, Kashkari emphasized the need for significant progress on inflation before considering interest rate cuts. He indicated that “many more months of positive inflation data” would be necessary before the Fed could confidently shift towards easing monetary policy.

The probability of a rate cut in September has dropped to 47% from 58% the previous week. The futures market is now pricing in around 31 basis points (bps) of rate cuts this year, down from over 50 bps earlier in the month, as per the CME FedWatch Tool.

Domestically, the Indian central government is planning to repurchase bonds worth Rs 40,000 crore ($4.80 billion) maturing within this financial year, marking its fourth buyback attempt in recent weeks. So far, the government has bought back securities worth approximately Rs 17,900 crore and has reduced the supply of Treasury bills by Rs 60,000 crore until the end of June, utilizing its surplus cash reserves.

The overall market sentiment has been positive, bolstered by the Reserve Bank of India’s (RBI) record surplus transfer, which has strengthened the government’s fiscal position. This has led to speculations of a potential reduction in debt supply later in the year.

As the global economic landscape evolves, the interplay between US monetary policy and domestic fiscal measures will continue to influence Indian government bond yields. Investors and traders will closely monitor both US inflation data and the RBI’s fiscal maneuvers to gauge the direction of bond yields in the coming months.

Read more Business related news on R9 News
Jhumpa Lahiri

Jhumpa Lahiri

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