Government bond yields in 2024 commence with an upward inclination

Government bond yields in 2024 commenced with a slight upward trend, influenced by a state borrowing plan exceeding expectations, thereby dampening demand. 

The 10-year benchmark bond yield stood at 7.1969 per cent at 10:00 am on Monday, reflecting a marginal increase from the 7.1754 per cent closing figure in the final 2023 session.

The preceding year concluded with a 15 basis points (bps) decline in the benchmark bond yield, with a second consecutive monthly decrease noted in December. 

The latest development revealed that Indian states aim to raise an unprecedented Rs 4.13 lakh crore ($49.67 billion) through bond sales in January-March, surpassing most market estimates. Market expectations, which predicted borrowing around Rs 3.50 lakh crore for the fiscal quarter ending March 31, were notably surpassed.

Analysts expressed concern over the lack of immediate positive factors to counter the impact of the disparity between the actual supply calendar and market expectations. 

Despite this, optimism remains as ongoing value purchases from investors, including state-run banks, are anticipated to prevent the benchmark bond yield from exceeding 7.20 per cent.

Foreign inflows, which surged in October-December, are expected to persist in the coming year. State-run banks, having recorded their most substantial weekly government bond purchases to conclude 2023, are predicted to continue being major buyers this month.

Traders foresee a "bull steepening" of the bond yield curve in 2024, attributing it to anticipated interest rate cuts by both the Federal Reserve and the Reserve Bank of India.

The 10-year US yield hovered around the critical 3.85 per cent level on Friday, with investors anticipating a mild economic recession in the US in 2024, potentially prompting rate cuts by the Federal Reserve as early as March.

(With Reuters Inputs)