Government bond yields decline amid value buying and Fed rate speculation

The government bond yields ended lower for the first time in four sessions on Tuesday, on value buying and as receiving in overnight index swap rates also aided sentiment.

The benchmark 7.26 per cent 2033 bond yield ended at 7.1600 per cent, after gaining seven basis points in three sessions to close at 7.1746 per cent on Monday.

The five-year OIS rate ended at 6.42 per cent, after jumping to 6.52 per cent on Thursday.

"There was some spike in yields, tracking global fundamentals, and some of that was pulled back," said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership.

"We expect range-bound trading till the next major trigger, which would be the local monetary policy."

The easing of Treasury yields since the US 10-year paper topped 4 per cent is giving local bond investors some confidence, traders said.

High Fed rate speculations limit bond yields

The Federal Reserve has raised rates by 525 basis points since March 2022 and signalled one more hike. However, the odds of a hike in September are just around 20 per cent.

Bets that US rates may remain higher for longer may curb a further rally in bond prices, traders said.

Added to that are fears that local retail inflation might climb, prompting the Reserve Bank of India (RBI) to take a hawkish stance in its monetary policy review.

India's retail inflation jumped to 4.81 per cent in June and, economists estimate, topped 6 per cent in July, breaching the upper end of the RBI's medium-term target.

The RBI will hold its key interest rate at 6.50 per cent through end-March 2024, according to a Reuters poll of economists, who pushed back their expectations for the first rate cut to the second quarter of 2024 from the first quarter in a June survey.

The RBI has maintained the status quo on rates this fiscal after raising rates by 250 bps last year.