The government bond yields dipped slightly during the week tracking its US peer. However, June's domestic retail inflation data dullens the prospects of rate cuts.
The Indian government bond yields experienced a slight decline on the weekend, tracking its US peers. But US yields decreased sharply during the week reflecting diminished inflationary pressures and heightening expectations of potential interest rate cuts.
The benchmark 10-year yield concluded the week at 6.977 per cent, down from Thursday's 6.983 per cent. The benchmark 10-year yield was at 6.99 per cent last weekend.
On Wednesday, Federal Reserve Chair Jerome Powell said he would wait to proclaim victory over inflation while expressing confidence in the economy's stability and continued low unemployment rates. Market expectations suggest a 75 per cent likelihood of a 25-basis point rate reduction in the US by September, according to the CME FedWatch Tool.
Foreign investors have shown more interest in Indian government securities maturing over five years via the fully accessible route (FAR) since the inclusion of bonds into JPMorgan's emerging market index with the 7.41% GS 2036 and the 7.10% GS 2034 emerging as favourites. They have poured over Rs 5,900 crore (into FAR bonds since June 28. The inclusion of Indian Government Bonds in the J.P. Morgan GBI-EM Index is expected to attract around USD 25 billion in passive inflows into India.
The indicative yield for T-bills currently stands at 6.75 per cent, 6.86 per cent, and 6.91 per cent for three-month, six-month, and 364-day durations, respectively. In the 1-2 year tenure, 5.63% GS 2026 indicates a yield of 6.90 per cent.
Moving on to longer tenures, 7.37% GS 2028 (4-5 year tenure) and the 7.10% GS 2034 (9-10 year range) show indicative yields of 6.95 and 6.97 per cent respectively.
The crucial factors that the debt market will focus on in the upcoming budget are the Fiscal Deficit target for FY25 and its trajectory for FY26.
Chair of the Fed Reserve Jeremy Powell on Wednesday stayed away from providing major guidance on interest rate cuts in the US. Meanwhile, in India, food prices rose mainly vegetable prices, pushing the headline retail inflation to a four-month high of 5.08 per cent in June. This dulls the prospects of an interest rate cut in India in the upcoming RBI MPC meeting as the central bank aims at around 4 per cent target.