Govt bond yields slip on signs of gradual tariff approach from Trump

Indian government bond yields ended lower on Tuesday, with the benchmark yield easing to its lowest in over five weeks, encouraged by the fall in US Treasury yields after President Trump did not impose major tariffs on his first day in office, indicating a gradual approach. 

The 10-year benchmark bond yield ended at 6.7373 per cent, the lowest level since Dec. 13, as compared with Monday's close of 6.7610 per cent. 

"With no immediate tariff announcement by the new US administration, the 10-year US bond yield eased, which pushed Indian 10-year bond yield to 6.73 per cent," said Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank. 

 

"Market outlook will be guided by upcoming announcements from Trump administration and bonds are likely to remain volatile." 

Trump said he was thinking of imposing 25 per cent tariffs on imports from Canada and Mexico, but did not make any other tariff-related announcement. 

Even so, Trump's proposed tariff policies will continue to be a key focus area and will drive volatility, said traders, who added that the tariffs - likely to be inflationary - will possibly dictate the outlook on rate cuts from the Federal Reserve this year. 

The 10-year US yield was down four basis points (bps) at around 4.57 per cent during Asian trade, but traders said further downside for US yields remained capped. 

US rate futures have priced in 43 bps of rate cuts this year, up from 39 bps before Trump's inauguration on Monday. The market also sees a 66 per cent chance of the next cut in June. 

In India, the spotlight is on the central bank's next step towards liquidity management after it began conducting daily repo auctions. 

Apart from this, the focus will also remain on government's federal budget announcement due on Feb 1, which will provide a major directional trigger. 

ANZ expects the government to target a gross borrowing of around Rs 14.70 trillion ($169.95 billion) for the next financial year that starts in April, up from Rs 14.01 trillion budgeted for the current year.   

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