Government bond yields may dip, reflecting trends in US markets

Bond yields in focus: Bond yields are anticipated to see a slight decline in the early session on Wednesday, mirroring the trend in US yields influenced by disappointing economic data. Investors are preparing for crucial jobs data scheduled for release on Friday.

The benchmark 10-year yield is projected to range between 7.04 per cent to 7.08 per cent, following its previous close at 7.0567 per cent, according to a trader with a private bank.

"Bond yields have shown remarkable stability in recent days, hovering around the 7.05 per cent level. However, the recent drop in the 10-year US yield below 4.20 per cent could provide a bullish push," the trader noted.

US yields retreated, with the 10-year yield easing to its lowest level in a month following the slowdown in the services industry growth in February. 

Weak economic indicators might prompt the Federal Reserve to consider adjusting monetary policy sooner than anticipated, with the likelihood of a rate cut in May now standing at 25 per cent, up from 16 per cent the previous week, according to the CME FedWatch tool.

Investors are now eagerly awaiting testimony from Fed Chair Jerome Powell on Wednesday and Thursday for any hints on policy direction, followed by the release of February non-farm payroll data on Friday.

Meanwhile, domestic bonds remained relatively unaffected by the inclusion of Indian government notes in another index, as Bloomberg Index Services announced on Tuesday.

The inclusion of 34 government securities eligible for investment via the country's fully accessible route in its Emerging Market Local Currency Index from Jan. 31, 2025, didn't spur major market reactions.

Madhavi Arora, lead economist at brokerage Emkay Global, pointed out that unlike the JPMorgan GBI-EM index, which tracks an estimated AUM of around $230-$240 billion, the BBG EMLC GBI is a much smaller index, possibly tracking an estimated AUM of around $10-$20 billion. This suggests that India's passive flows impact could be between $1-$2 billion only.

(With Reuters Inputs)