Government bond yields may rise following uptick in US treasury yields

Government bonds may rise: Government bond yields are anticipated to experience an increase, mirroring the surge in US Treasury yields following robust economic indicators in the world's largest economy, which tempered expectations of aggressive rate cuts.

The benchmark 10-year yield is projected to range between 7.05 per cent and 7.10 per cent, according to a trader from a primary dealership, following its previous close at 7.0555 per cent.

Last week, the yield witnessed a notable decline of 12 basis points, marking the sharpest drop since November 11, 2022.

"The unexpected data has caught everyone off guard, as evidenced by the movement in Treasury yields. Consequently, there should be a slight uptick in bond yields at the beginning of the week," stated the trader.

The surge in US yields persisted, with the 10-year yield surpassing the 4 per cent mark on Friday and extending gains during Asian trading hours on Monday. This surge followed the revelation that non-farm payrolls increased by 353,000 jobs last month, nearly double the 180,000 forecasted by economists polled by Reuters. 

Moreover, December's data was revised upwards to indicate 333,000 jobs added instead of the previously reported 216,000. 

The inversion between the 2-year and 10-year US yields also reached its highest level in a month as investors scaled back expectations regarding the timing and pace of rate cuts.

Expectations for a rate cut in March have dwindled to approximately 15 per cent from 66 per cent last month, while the likelihood of a 150 basis point rate cut in 2024 has also plummeted to just 25 per cent from being nearly certain previously.

Despite these fluctuations, the underlying sentiment remains positive as the market eagerly awaits the Reserve Bank of India's (RBI) monetary policy decision scheduled for Thursday, following a boost from last week's federal budget announcement. 

The government aims to reduce the fiscal deficit to 5.1 per cent of gross domestic product (GDP) and plans to gross borrow Rs 14.13 lakh crore ($170.27 billion) via bonds, a figure lower than expectations and below the current year's planned borrowing.

(With Reuters Inputs)