Government bond yields may rise before debt supply

Bonds to rise: Government bond yields are poised to experience slight upward movement in early trading on Friday, following the central bank's recent monetary policy decision which fell short of market expectations. 

Traders are gearing up for a new round of debt supply through the weekly auction.

The 10-year benchmark yield is anticipated to fluctuate within the range of 7.06 per cent to 7.10 per cent, maintaining proximity to its previous close at 7.0789 per cent. 

Reflecting on the aftermath of yesterday's monetary policy announcement, traders observe a corrective phase as aggressive positions are unwound. 

Caution prevails ahead of the debt auction, with market movements likely to be influenced by cutoff rates.

The government aims to raise Rs 33,000 crore in its penultimate debt auction of the fiscal year, including Rs 16,000 crore of benchmark paper. This comes after the Reserve Bank of India's final monetary policy decision for the fiscal year, which maintained rates and stance unchanged while highlighting the challenges of achieving the inflation target.

RBI Governor Shaktikanta Das stressed the difficulty of achieving further disinflation. 

The policy decision, characterised as uneventful, did not alter expectations of potential rate cuts in the latter part of 2024, aligning with global trends. The 5:1 split among policymakers on the policy rate underscores the evolving sentiment.

Market focus remains on demand-supply dynamics, particularly favourable for longer-tenor government bonds amid aggressive fiscal consolidation measures. 

Meanwhile, US yields have seen an increase, with the 10-year yield hovering around 4.15 per cent, amidst anticipation of key inflation data that could offer insights into the Federal Reserve's rate-cutting trajectory.

The likelihood of a Fed rate cut in May has decreased to approximately 62 per cent, down from 94 per cent the previous week, reflecting shifting market sentiments and economic indicators.

(With Reuters Inputs)