Indian govt bond yields seen rangebound as traders await fresh cues

Indian government bond yields are expected to remain largely rangebound in early trading on Wednesday as traders await fresh triggers, including a buyback of securities and a fresh supply of debt during the week.

The benchmark 10-year yield is likely to move in a 7.10 per cent-7.15 per cent range, following its previous close of 7.1284 per cent, a trader with a private bank said.

"After some profit booking yesterday, we may see some rangebound moves, as there is no stronger directional trigger to either break 7.10 per cent on the downside or 7.15 per cent on the upside," the trader said.

Yields declined on Monday tracking a drop in US yields, as traders turned optimistic on the Federal Reserve's rate cuts during the year after weaker-than-expected April nonfarm payrolls data on Friday.

The 10-year US yield has stayed below 4.50 per cent since then, and traders are now pricing in 44 basis points of rate cuts in 2024, up from around 34 bps last week, according to 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.

Back home, the Reserve Bank of India will conduct a buyback of bonds worth up to 400 billion rupees ($4.79 billion) on Thursday, which will infuse liquidity in the banking system, that has stayed in a deficit over the last few weeks.

The central bank is stepping in to ease liquidity conditions as a national election which stretches over six weeks is hurting government spending despite strong tax collections, market participants said.

The government's cash balances are expected to get a further boost later this month, with ICICI Securities Primary Dealership anticipating a transfer of around 1.20 trillion rupees from the RBI as dividend.


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