Government bond yeilds stable as markets await key economic data

Government bond yeilds: Government bond yields are anticipated to remain largely unchanged at Tuesday's opening, as traders look for direction from key data releases later this week.

The benchmark 10-year bond yield is expected to fluctuate within a narrow range of 6.97 per cent to 7.02 per cent, following its previous close at 6.9911 per cent, according to a trader from a private bank.

"The market has lacked clear signals in recent sessions, but upcoming local and US inflation data should provide fresh triggers," the trader noted.

On Monday, US Treasury yields showed mixed movements as investors awaited guidance from the Federal Reserve and June inflation figures. Fed Chair Jerome Powell’s testimony before the Senate on Tuesday and the House on Wednesday is highly anticipated for potential clues on future rate directions.

Current market sentiment shows a 71 per cent probability of a 25-basis point Fed rate cut in September, with expectations of two 25-basis point cuts throughout 2024, according to FEDWATCH.

Traders are closely monitoring the local inflation data set to be released on Friday and the first union budget from the newly-elected government, scheduled for July 23.

Shreya Sodhani, a regional economist at Barclays, predicts that "CPI inflation likely eased to 4.6 per cent year-on-year in June, aided by base effects despite a sequential rise in food prices." Sodhani added that "CPI inflation is expected to drop sharply in the coming months, but the Reserve Bank of India will likely await signs of sustained disinflation."

Goldman Sachs economists suggest that the new government’s first budget under Prime Minister Narendra Modi might stress welfare spending, with a focus on the rural economy and job creation.

In other key indicators, Brent crude futures were down 0.2 per cent at $85.58 per barrel, following a 0.9 per cent decline in the previous session. The 10-year US Treasury yield stood at 4.2803 per cent, while the two-year yield was at 4.6264 per cent.

Additionally, five states are set to raise 61 billion rupees ($730.70 million) through bond sales.

(with Reuters inputs)