Bond yields dip as US Treasury movement triggers bullish sentiment

Bond yields fall: Government bond yields started the week lower as US Treasury yields declined, with a notable portion of the yield curve dropping below the critical level of 4.20 per cent.

The benchmark 10-year yield, which closed at 7.0572 per cent, was at 7.0528 per cent as of 10:00 am.

"US yields were one of the bearish factors impacting local bonds. However, if the movement below 4.20 per cent continues, the Indian 10-year benchmark yield could ease to 7 per cent," noted a trader from a state-run bank.

US yields eased on Friday, with the 10-year yield reaching levels last seen three weeks ago following a slump in US manufacturing in February, marginally boosting expectations for Federal Reserve rate cuts in May.

The likelihood of a rate cut in May improved to 28 per cent from 24 per cent the previous week, according to the CME FedWatch tool. 

Investors are awaiting Fed Chair Jerome Powell's testimony to lawmakers on Thursday and the February US jobs data on Friday.

Domestically, lower-than-scheduled bond supply from states this week is supporting sentiment. Additionally, central government debt supply has ceased for the year.

The states aim to raise Rs 27,981 crore ($3.38 billion) through bond sales, compared to the Rs 38,166 crore originally planned.

Despite India's economy growing at 8.4 per cent in the October-December quarter, exceeding estimates of 6.6 per cent, and higher than the previous three months' growth of 7.6 per cent, expectations for rate cuts remain unchanged.

However, economists suggest that the third-quarter GDP print may overstate growth, pointing to a more modest increase in gross value added in the economy.

In February, the central bank maintained rates for the sixth consecutive time, reaffirming its commitment to achieving its 4 per cent inflation target sustainably.

(With Reuters Inputs)