Government bond yields to consolidate after recent dips

Govt bond yields: The government bond yields are anticipated to stabilise on Tuesday, hovering around the 7.10 per cent mark, following a recent decline that may prompt some profit booking. With US Treasury yields remaining relatively steady, the benchmark 10-year Indian bond yield is expected to fluctuate within a range of 7.08 per cent to 7.13 per cent, according to a trader from a private bank.

The recent drop in bond yields came after the government announced a surprise buyback of bonds worth Rs 40,000 crore ($4.79 billion), scheduled for Thursday, aimed at injecting liquidity into the banking system. The move is viewed as a liquidity-boosting measure rather than a shift in the central bank's stance on liquidity or policy, according to insights from DBS Bank.

In the US, Treasury yields showed minimal movement, with the 10-year yield hovering around 4.50 per cent, as investors digested April's non-farm payroll data, which fell short of expectations. The data supported the Federal Reserve's view that the economy was not overheating, potentially paving the way for rate cuts in 2024.

Market futures are now pricing in 44 basis points of rate cuts in 2024, likely commencing in September or November, as indicated by the LSEG's rate probability app. This contrasts with previous expectations of only one rate cut, reflecting evolving sentiments amid persistent inflation concerns and robust economic indicators in recent weeks.

(With Reuters inputs)