Bond yields stable amid absence of fresh catalysts

Government bond yields maintained stability on Thursday, as markets lacked significant triggers and investors awaited cues from upcoming debt auctions.

The benchmark 10-year yield closed at 7.1321 per cent, remaining largely unchanged from its previous close of 7.1343 per cent. According to Debendra Kumar Dash, Senior Vice President of Treasury at AU Small Finance Bank, local bond yields have been range-bound, influenced by movements in US yields and a dearth of strong directional triggers.

The Reserve Bank of India (RBI) conducted a buyback of government bonds worth Rs 10,510 crore on Thursday, against the notified amount of Rs 40,000 crore. Dash noted that the auction's acceptance indicates that bondholders sought higher prices than what the RBI was offering, suggesting that short-term rates may not decline in the near future.

The buyback auction occurred amidst tight liquidity conditions in the banking system in recent weeks. Market participants now anticipate New Delhi's bond sale worth Rs 20,000 crore scheduled for Friday, along with upcoming inflation data from both India and the United States next week, for further market direction.

Economists polled by Reuters predict that India's consumer price inflation likely eased to 4.80 per cent in April, slightly below March's rate, primarily due to persistent food inflation. Meanwhile, weaker-than-expected April US non-farm payrolls data has revived expectations of two rate cuts by the Federal Reserve this year. Initially, the odds of rate cuts had diminished to just one following elevated inflation and robust economic indicators.

Traders are currently pricing in a 66 per cent probability of a Fed rate cut in September, with expectations of at least a 25 basis points reduction, as indicated by LSEG's rate probability app.

(With Reuters inputs)