Govt bond yields likely to consolidate with benchmark yield at 7.10%

Indian government bond yields are expected to consolidate on Tuesday, with the benchmark bond yield around 7.10 per cent levels, as the recent fall in yields could attract further profit booking, while US peers remained flattish.
 

The benchmark 10-year yield is likely to move in a 7.08 per cent-7.13 per cent range, following its previous close of 7.1068 per cent, the lowest level since April 4, a trader with a private bank said.
 

"As expected, benchmark yield is seeing strong offers around the 7.10 per cent zone, and is unlikely to break that level unless there is some new trigger, and with not much data this week, we may see some sideways moves," the trader said.
 

Bond yields declined at the start of the week, as the government announced a surprise buyback of bonds worth Rs 40,000 crore ($4.79 billion), due on Thursday, to infuse liquidity into the banking system.
 

The buyback of securities is a liquidity injecting tool, and will help in easing liquidity in the system, a source familiar with the government's thinking said.
 

"We are not in the camp which interprets the buyback as a signal of a change in the central bank's stance on liquidity or policy. In our view, it underscores the authorities' preference to stay nimble with its liquidity toolkit," DBS Bank said.
 

Meanwhile, US Treasury yields remained largely unchanged, with the 10-year yield anchored around the 4.50 per cent mark, as investors digested Friday's data showing non-farm payrolls rose by 175,000 jobs in April, below estimates of 243,000.
 

The data has validated the Federal Reserve's suggestion that the economy was not so overheated and it could embark on its rate easing cycle in 2024.
 

Futures are now pricing 44 basis points of rate cuts in 2024, most likely starting in September or November, according to the LSEG's rate probability app.
 

For the last few weeks, the futures market had factored in just one cut amid persistently elevated inflation and strong economic data.

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