Government bond yields await US inflation data

Government bond yields: Government bond yields are expected to hold steady early Thursday as investors await key inflation figures from the United States later in the day, followed by India's retail inflation data on Friday.

The benchmark 10-year yield, which closed at 6.9883 per cent in the previous session, is anticipated to trade within a narrow range of 6.96 per cent to 7.00 per cent, according to a trader from a private bank.

Market sentiment hinges on the upcoming US inflation report, with expectations set at a 0.1 per cent month-on-month increase and a year-on-year rise of 3.1 per cent. Federal Reserve Chair Jerome Powell's cautious stance on inflation and economic stability has also influenced market dynamics, contributing to a slight easing in the 10-year US yield following his recent comments to Congress.

The probability of a 25-basis point rate cut by the Fed in September remains at approximately 75 per cent, while expectations for further cuts in 2024 also persist, as indicated by the CME FedWatch Tool.

In India, investors are awaiting the release of consumer inflation data, expected to show a slight uptick in June driven by higher vegetable prices. A Reuters poll forecasts a year-on-year increase in retail inflation to 4.80 per cent, up from 4.75 per cent in May.

Additionally, the Indian government plans to raise $2.64 billion through the sale of bonds on Friday, including 7-year and 40-year bonds, which will add to market activity and sentiment.

The bond market's cautious stance reflects global economic uncertainties and the potential impacts of inflationary pressures on central bank policies, influencing investor strategies in both the US and Indian markets ahead of key data releases.

(with Reuters inputs)