Bond yields decreasing: Government bond yields are anticipated to decrease early in the week, mirroring a drop in US Treasury yields amidst lacklustre economic data, fostering expectations of monetary policy easing.

Yield projection analysis

The 10-year benchmark yield is projected to fluctuate within a range of 7.03 per cent to 7.08 per cent, following its previous close of 7.0572 per cent, according to a trader from a private bank.

"We may witness bullish movements as the 10-year US yield has dipped below the crucial threshold of 4.20 per cent after several days, potentially signalling a move towards the 4 per cent mark if the trend persists," highlighted the trader.

US yields saw a decline on Friday, with the 10-year yield reaching levels not seen in three weeks, driven by a further slump in US manufacturing during February, slightly boosting expectations for Federal Reserve rate cuts in May.

Rate cut probability

The probability of a rate cut in May rose to 28 per cent, up from 24 per cent the previous week, as per the CME FedWatch tool.

Domestically, traders are awaiting fresh cues amidst a pause in central government bond supply, while states continue to fall short of their borrowing targets consistently.

States plan to raise Rs 279.81 billion ($3.38 billion) through bond sales, compared to the Rs 381.66 billion initially scheduled.

Despite the economy expanding by 8.4 per cent in the October-December quarter, surpassing market estimates, rate cut expectations remained unchanged, with economists suggesting that the GDP figures might overstate actual growth.

Stable interest rates

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

Key indicators show Brent Crude futures edging up by 0.2 per cent to $83.70 per barrel, following a 0.1 per cent decline in the previous session, while the 10-year US Treasury yield stood at 4.1934 per cent and the two-year yield at 4.5500 per cent.

(With Reuters Inputs)