Bond yields dip as bulls take charge, reversing early rise

Government bond yields dipped slightly on Thursday, reversing an early rise as traders resumed bond purchases in the wake of a bumper rate cut from the US central bank.

The benchmark 10-year yield was at 6.7736 per cent as of 9:45 am, compared with its previous close of 6.7808 per cent. Indian debt markets were closed on Wednesday.

"An early attempt to take the benchmark bond yield to 6.80 per cent has been thwarted as traders have stepped in to enter fresh positions after a correction on Tuesday gives decent entry opportunity," trader with a state-run bank said.

The US central bank on Wednesday kicked off its interest rate cut cycle with a larger-than-usual half percentage point reduction to 4.75 per cent-5.00 per cent.

Fed Chair Jerome Powell said the move was meant to show policymakers' commitment to sustaining a low unemployment rate and called the move a "recalibration".

However, he also said he did not see anything in the economy that suggests an elevated likelihood of a recession or a downturn, leading to a rise in Treasury yields.

US yields rose across the board, with the widely-tracked spread between the 2-year and 10-year yields hitting rising briefly above 10 basis points for first time in two months.

Fed policymakers have projected interest rates would fall by another 50 bps in 2024, 100 bps in 2025 and 50 bps in 2026, according to an updated dot plot. However, futures are pricing aggregate of around 70 bps of cuts in next two policy meetings.

Nomura expects 25 bps of cut in each of the two meetings, but sees risks of a more dovish path.

Traders also eye fresh supply which includes Rs 20,000 crore of benchmark paper on Friday.