Indian Government Bond Yields Expected to Remain Rangebound
Indian government bond yields are anticipated to remain within a narrow range during early trading on Wednesday. This expectation stems from a lack of significant market catalysts, with traders awaiting developments such as a government bond buyback and fresh debt issuance later in the week.
The benchmark 10-year bond yield is projected to fluctuate between 7.10% and 7.15%, following its previous close at 7.1284%. This assessment comes from a trader at a private bank, who anticipates rangebound movement due to the absence of strong directional triggers.
The decline in yields on Monday mirrored a similar trend in US yields. This shift in sentiment followed the release of weaker-than-expected April nonfarm payrolls data in the US, which fueled optimism among traders regarding potential Federal Reserve rate cuts later this year.
The 10-year US yield has remained below 4.50% since the data release, and traders are now pricing in 44 basis points of rate cuts in 2024. This represents an increase from the 34 basis points anticipated last week. Notably, the futures market had previously factored in only one rate cut due to persistent inflation and robust economic data.
In India, the Reserve Bank of India (RBI) is scheduled to conduct a bond buyback worth up to 400 billion rupees ($4.79 billion) on Thursday. This buyback aims to inject liquidity into the banking system, which has experienced a deficit in recent weeks.
Market participants attribute the RBI's intervention to easing liquidity conditions. This action is deemed necessary as government spending has been hampered by the ongoing national elections, despite strong tax collections.
Furthermore, government cash balances are expected to receive a boost later this month. ICICI Securities Primary Dealership anticipates a transfer of approximately 1.20 trillion rupees from the RBI as dividend.