Bond yields set to dip as focus shifts to Fed decision

Bond market news: Indian bond yields are poised to dip slightly at the beginning of the week, with attention focused on the Federal Reserve's upcoming monetary policy decision. This move comes as oil prices and US yields retreat from recent highs.

The benchmark 10-year Indian yield is expected to trade between 7.16 per cent and 7.21 per cent, following Friday's close at 7.1870 per cent. This projection is based on expectations of continued buying momentum in the secondary market, supported by a mild easing in Treasury yields and oil prices.

US yields fell on Friday after data showed that the personal consumption expenditures (PCE) price index rose 0.3 per cent last month and 2.7 per cent annually, in line with expectations. Despite this, expectations for US rate cuts remain unchanged, with the Fed expected to maintain a cautious tone at its upcoming meeting.

Investors are now pricing in the possibility of around 34 basis points of cuts by the Fed in 2024, compared to over 150 basis points at the beginning of the year.

Meanwhile, Brent crude prices eased in Asian trading hours on Monday, as peace talks between Israel and Hamas in Cairo reduced fears of a wider conflict in the Middle East.

Indian bond yields declined last week after rising for the first three weeks of the new fiscal year, as strong demand at the weekly debt auction reinforced the belief that current yield levels may have peaked.

Key indicators include Brent crude futures trading 1 per cent lower at $88.60 per barrel, and the 10-year US Treasury yield at 4.6630 per cent, with the two-year yield at 4.9934 per cent.

(With Reuters inputs.)