Indian Government Bond Yields Expected Stable Amid Awaited US Data and Debt Supply

Bond Yields: In the Indian government bond market, early trading on Friday is expected to be relatively stable, with yields likely to remain largely unchanged as traders await new debt supply and key U.S. data. The benchmark 10-year yield is anticipated to fluctuate within a range of 7.14 per cent to 7.19 per cent, following its previous close of 7.1598 per cent.

New Delhi plans to raise 280 billion rupees ($3.36 billion) through a bond sale later in the day, including 100 billion rupees of a 15-year paper. However, breaking the key resistance levels around 7.14 per cent to 7.15 per cent would require a significant trigger, which is not anticipated in the current market environment.

U.S. Treasury yields experienced a decline on Thursday, with investors considering the Federal Reserve's stance, which indicated that rate cuts were still plausible despite inflation persisting above the 2 per cent target. The U.S. 10-year yield fell below 4.60 per cent, with the April non-farm payrolls data awaited for further insights into the interest rate outlook.

The recent Fed decision to maintain interest rates and adopt a less hawkish tone than anticipated has bolstered investor confidence. Expectations now lean towards the possibility of approximately 40 basis points of rate cuts in 2024, up from around 35 basis points earlier in the week, as indicated by CME's FedWatch Tool.

Market sentiment remains supported by Brent crude prices staying below $85 per barrel. Since India is one of the largest importers of oil, fluctuations in oil prices directly influence the country's retail inflation.

Key indicators to watch include Brent crude futures, with prices slightly higher at $83.85 per barrel, and U.S. Treasury yields, with the ten-year yield at 4.5893 per cent and the two-year yield at 4.8810 per cent. Additionally, the market will closely monitor India's sovereign bond auction, as well as the Reserve Bank of India's actions regarding underwriting fees and repo operations.