Government bonds to hold steady amid traders wait for stronger cues

Government bonds today: The government bond yields will maintain a relatively stable range at the outset of Wednesday's trading session, awaiting fresh market catalysts such as a scheduled securities buyback and forthcoming debt issuance. 

The benchmark 10-year yield, which closed at 7.1284 per cent in the previous session, is forecasted to fluctuate within the 7.10 per cent -7.15 per cent band, as outlined by a trader associated with a private bank.

Following a period of profit booking on Tuesday, market movements are expected to exhibit a lack of significant directional momentum, with no imminent triggers to propel yields decisively below 7.10 per cent or above 7.15 per cent, according to the trader's assessment.

Monday witnessed a decline in yields in response to a downturn in US yields, driven by growing optimism among traders regarding potential rate cuts by the Federal Reserve, following weaker-than-anticipated April nonfarm payrolls data.

Meanwhile, the 10-year US yield has remained below 4.50 per cent since the mentioned event, with market participants now factoring in an increased likelihood of rate cuts in 2024, as indicated by LSEG's rate probability app.

On the domestic front, the Reserve Bank of India is scheduled to execute a bond buyback worth up to Rs 40,000 crore ($4.79 billion) on Thursday, aimed at injecting liquidity into the banking system, which has experienced a sustained deficit in recent weeks.

Market observers attribute this move to the ongoing national election period spanning six weeks, which has reportedly impacted government spending despite robust tax collections.

Furthermore, it is anticipated that the government's cash reserves will receive a substantial boost later in the month, with ICICI Securities Primary Dealership estimating a dividend transfer of around Rs 1.20 lakh crore from the RBI.

(With Reuters inputs)