Government bond yields to ease amid downward pressure from US peers

Government bond yields: The government bond yields are anticipated to experience slight downward pressure in early trading on Friday, mirroring movements in US counterparts, with market attention shifting towards the weekly debt auction for further guidance.

According to a trader from a state-run bank, the benchmark 10-year yield, currently hovering around 7.1321 per cent, is likely to fluctuate within a range of 7.10 per cent to 7.15 per cent.

"With no clear directional signals, the yield is expected to trade within a narrow band throughout the day. Investors are awaiting US and domestic inflation data next week," remarked the trader.

The US Treasury yields dipped on Thursday in anticipation of crucial inflation reports crucial for the Federal Reserve's interest rate strategy. The downward trajectory in yields has been influenced by lower-than-expected April payrolls.

"While a moderation in US inflation would bring relief, persistent inflation, especially with elevated energy costs in April, could prompt a shift in rate cut sentiment," noted Anitha Rangan, an economist at Equirus Group.

Traders are factoring in the likelihood of two 25-basis-point rate cuts this year, with the first anticipated in September.

In addition to monitoring inflation trends, market participants will scrutinise any announcements by the Indian government regarding further bond buybacks, as liquidity in the banking system remains in deficit.

Following the central bank's acceptance of offers worth Rs 10,510 crore ($1.26 billion) to buy back government bonds at Thursday's auction, the government will evaluate the necessity of conducting another round of bond buybacks, given the ongoing liquidity shortfall.

(With Reuters inputs)