Bond yields expected to follow US decline

Bond market news: Government bond yields are predicted to open lower on Monday, mirroring a decline in US Treasury yields after US labor market data indicated a slowdown, raising expectations that the Federal Reserve will start cutting interest rates in September.

The benchmark 10-year Indian government bond yield (IN071034G=CC) is anticipated to move within the 6.98 per cent-7.03 per cent range, following its previous close at 6.9926 per cent, according to a trader from a primary dealership.

US yields fell after the release of nonfarm payrolls data, which showed a slightly higher-than-expected increase of 206,000 jobs in June. However, the figures for April and May were revised down by 111,000, suggesting a deceleration in payroll growth.

The labor market's performance has been a crucial factor for Fed policymakers in determining the timing of rate cuts, as they worry that a robust job market could fuel inflation. Following the latest data, the probability of a 25-basis-point rate cut in September rose to approximately 73 per cent, up from 58 per cent a week ago, according to the CME Group's FedWatch tool.

Domestically, the newly elected Indian government is set to present its first union budget on July 23, which will be a significant event for the bond market.

"Fiscal consolidation will be maintained in the budget, but there will be an increase in revenue-side spending to balance income support and growth support," said Anitha Rangan, an economist at Equirus Group. "Capital expenditure cannot be compromised for the sake of consolidation. The interim budget already indicated a growth focus, and the final budget is likely to further enhance this focus. The balance of capex, consolidation, and growth will be closely monitored."

Key Indicators:

• Brent crude futures (LCOc1): Down 0.2 per cent at $86.33 per barrel, after a 1 per cent drop in the previous session.
• Ten-year US Treasury yield (US10YT=RR): 4.3018 per cent
• Two-year US Treasury yield (US2YT=RR): 4.6244 per cent

(With Reuters inputs.)