Government bond yields rise, US data influences rate-cut expectations

Government bond rises: Government bond yields increased on Tuesday, mirroring a surge in US bond yields driven by strong economic data, which tempered expectations of rate cuts.

The benchmark 10-year bond yield closed at 7.1160 per cent, up from the previous close of 7.0556 per cent, influenced by changes in the domestic debt auction methodology and positive US economic indicators.

Anitha Rangan, an economist at Equirus Group, noted, "Stronger than expected US data will keep pushing Federal Reserve rate cut expectations away."

The US yields rose on Monday after better-than-expected manufacturing data, with the 10-year yield around 4.35 per cent, lowering the odds of a June rate cut to 59 per cent from over 70 per cent last week.

Market participants are awaiting the Reserve Bank of India's (RBI) monetary policy decision on Friday, with expectations leaning towards the RBI maintaining the status quo.

"We do not expect a rate cut this year. Until the Fed is well into accommodation, the RBI is unlikely to step into the easing mode as currency and external factors need a watch," added Rangan.

The RBI has kept its key repo rate unchanged for six consecutive meetings, aiming to sustainably meet the 4 per cent inflation target.

The government plans to auction new 10-year bonds worth 200 billion rupees ($2.40 billion) on Friday to initiate its borrowing programme for the financial year. However, the new bond is not expected to be priced at a significant premium due to the high quantum on offer and a change in the auction methodology.

(with Reuters inputs)