Government bonds: Government bond yields experienced minimal movement on Tuesday as market participants awaited fresh signals amidst a holiday-shortened week and anticipated a crucial debt sale. The benchmark 10-year yield closed at 7.1751 -per cent, only marginally deviating from its previous close at 7.1790 per cent. The bond markets observed a closure on Monday and will remain shut on Friday.

Debendra Kumar Dash, Senior Vice President of Treasury at AU Small Finance Bank, remarked, "There is uncertainty over the timing of the rate cuts, and that is moving US bonds, but local bonds are in a wait-and-watch mode, waiting for strong triggers. The benchmark yield may remain rangebound until the Union Budget next week."

In global markets, the 10-year US bond yield held above 4.10 per cent, with investors adjusting their expectations for the timing and pace of rate cuts by the Federal Reserve in 2024. This recalibration follows a series of robust economic data releases, suggesting that the Fed's move to a less restrictive stance might not be immediate.

Fed rate cut

Traders have adjusted the likelihood of the first Fed rate cut by March to 44 per cent, down from 81 per cent on January 12. Additionally, the probability of 150 basis points of cuts in 2024 has decreased to 47 per cent from 91 per cent, according to the CME's FedWatch Tool. The upcoming policy decision from the Fed is scheduled for January 31.

Meanwhile, attention is turning to India's federal budget for the next financial year, set to be unveiled on February 1. According to a Reuters poll, the Indian government aims to reduce the fiscal deficit as a percentage of GDP to 5.30 per cent in 2024–25, down from 5.90 per cent in the current fiscal year ending March 2024.

Earlier in the day, 13 states raised Rs 232.80 billion ($2.80 billion) through a bond sale, and the auction cut-offs aligned with expectations. Market participants are now awaiting the central government's weekly debt sale, with New Delhi aiming to raise Rs 330 billion through bonds, including Rs 160 billion of benchmark notes.

(with Reuters inputs)