Indian Government Bond Yields Dip Amidst Oil Price Retreat and US Treasury Yield Pullback

Govt bond yields: Indian government bond yields experienced a slight decline in early trading on Thursday, mirroring a retreat in oil prices and U.S. Treasury yields. This provided a sense of relief to nervous investors amidst recent market volatility.

As of 10:00 a.m. IST, the benchmark 10-year yield stood at 7.1566 per cent, down from its previous close at 7.1860 per cent. Analysts anticipate the benchmark yield to trade within a range of 7.15 per cent to 7.20 per cent for the day and tomorrow, supported by the current sentiment in the bond market.

The pullback in U.S. Treasury yields, which had surged in recent weeks, contributed to the calming of investor nerves. Expectations of fewer rate cuts by the Federal Reserve in 2024, based on recent economic data and Fed officials' commentary, tempered the relentless rise in yields. Futures markets now price in less than 50 basis points of rate cuts by the end of the year, a significant reduction from earlier projections.

Additionally, oil prices eased overnight, with the benchmark Brent crude contract hovering around $87 per barrel. This dip came despite concerns about potential supply disruptions due to conflict in the Middle East. However, a rise in U.S. commercial inventories and weaker Chinese economic data offset these worries.

The movement in oil prices is significant for India, a major oil importer, as higher prices can impact retail inflation and pose challenges for the Reserve Bank of India's 4 per cent target.

In other news, the Indian government announced plans to sell Treasury bills worth 270 billion rupees and bonds worth 240 billion rupees ($2.87 billion) later in the day and on Friday, including the issuance of a new 40-year note. These developments will likely influence trading dynamics in the bond market in the near term.

With Reuters Inputs