Government's 10-year bond yield at 30-month low on bets of big Fed rate cut

Indian government bond yields declined on Friday, with benchmark bond yield slipping to its lowest in nearly 30 months, on expectations of a big US rate cut next week.

10-year yield was at 6.7918 per cent as of 10:00 am IST, compared with its previous close of 6.8054 per cent. Earlier in session, it fell to 6.7908 per cent, lowest since March 31, 2022.

" previous key level was finally taken out yesterday, and with renewed hopes of a larger rate cut from Federal Reserve, re is strong impetus to break 6.80 per cent levels, but we are also seeing heavy offers," a trer with a state-run bank said.

US bond yields fell on Thursday as rate futures rallied in reaction to media reports suggesting Fed decision on a rate cut of 25 or 50 basis points (bps) at its September 17-18 meeting would be a close one.

Wall Street Journal and Financial Times reported that size of a rate reduction would be a tough call for Fed, surprising markets that h anticipated a 25 bps cut.

probability of a 50 bps move tripled from a day earlier to 43 per cent with aggregate cuts of 115 bps w expected over three Fed meetings in 2024.

Bond market sentiment was upbeat after Reserve Bank of India cancelled two treasury bill auctions, due in September, which will furr boost banking system liquidity.

India's August retail inflation was at 3.65 per cent in August, data showed on Thursday. print was higher than revised 3.60 per cent in July but stayed below central bank's target of 4 per cent for second straight month even as vegetable prices soared.

New Delhi will sell bonds worth 220 billion rupees ($2.62 billion) later in day. auction should entice investors, as it is last federal debt sale before Fed decision.