Govt Bond Yields Expected to Hold Steady Ahead of U.S. Inflation Data

Bond Yields to Hold Steady: In early trading on Wednesday, Indian government bond yields are anticipated to remain relatively unchanged as market participants await crucial U.S. inflation data, which will influence interest rate expectations.

The benchmark 10-year yield is projected to trade within a narrow range of 7.12 per cent to 7.16 per cent following its previous session's closing at 7.1501 per cent, the highest since January 31st. With Indian debt markets closed on Thursday for Eid al-Fitr, traders are cautious about potential volatility.

Market sentiment suggests a lack of significant selling pressure, especially considering the recent easing of U.S. Treasury yields from their highs. However, any substantial movement in yields is likely to be observed following the release of U.S. inflation figures.

Investors are closely monitoring the U.S. inflation data, with expectations of a 0.3 per cent month-on-month increase and a 3.4 per cent reading for the 12 months to March. The Federal Reserve's stance on rate cuts has been influenced by strong non-farm payroll data, raising uncertainties over the timing of future rate adjustments.

In India, retail inflation data is scheduled for release on Friday, coinciding with New Delhi's plan to raise 300 billion rupees through bond sales, including a new 15-year note.

Concerns persist among Indian bond traders regarding the benchmark Brent crude contract hovering around the $90 per barrel mark, as elevated commodity prices could impact local inflation dynamics.

Key indicators shaping market sentiment include Brent crude futures, which edged 0.2 per cent higher to $89.60 per barrel, and U.S. Treasury yields, with the ten-year yield at 4.3596 per cent and the two-year yield at 4.7426 per cent.

The Reserve Bank of India (RBI) is set to auction Treasury bills worth 270 billion rupees, reflecting ongoing efforts to manage liquidity in the financial system.

With Reuters Inputs