Government bond yields fall as US growth concerns spark aggressive rate-cut bets

Government bond yields dipped on Monday as traders wagered the Federal Reserve will need to be aggressive in cutting interest rates after weak jobs data stoked worries over the US economy.

The benchmark 10-year yield settled at 6.8611 per cent, its lowest level since March 31, 2022, compared with its previous close of 6.8945 per cent. The bond yield briefly breached below the key technical level of 6.85 per cent.

US Treasury yields plunged on Friday after data showed the world's largest economy created fewer jobs than expected in July, boosting bets of aggressive rate cuts by the Fed.

The US 10-year yield dropped to the lowest level since December on Friday and extended its decline on Monday. It was last at 3.7229 per cent in Asian hours.

Markets are now anticipating 125 basis points (bps) of US rate cuts this year, with traders pricing in an 89 per cent chance of the Fed lowering rates by 50 bps in September from an 11.5 per cent chance a week earlier, according to CME FedWatch tool.

Reserve Bank of India (RBI) is expected to keep rates steady for a ninth straight meeting this week due to persistently high inflation, with a slim majority of economists in a Reuters poll expecting the first cut next quarter.

"The scope for rate cuts in India is on account of high real positive rates and the need to encourage private investment and there is a fair probability of rate cuts in the second half of FY25," said Puneet Pal, fixed income head at PGIM India Mutual Fund.

The central bank "is also likely to draw comfort from the start of the monetary easing cycle in advanced economies", he said.