Indian government bond yields consolidate amid global economic trends

Indian government bond yields are expected to consolidate on Wednesday after easing in the first two trading sessions of the week. The benchmark 10-year yield is likely to trend in a 7.15%-7.19% range, following its previous close at 7.1643%. Bond yields have eased seven basis points in the last two days, but further declines would require a strong positive trigger. Geopolitical tensions remain a concern, although they have not escalated significantly.

Bond yields eased as oil prices trended down from multi-month highs, but a surprise drop in U.S. crude stocks last week led to a slight uptick in the benchmark Brent crude contract on Wednesday. India, being a major importer of oil, could face challenges in achieving the Reserve Bank of India’s inflation target if oil prices remain elevated.

U.S. Treasury yields marginally eased as data showed a cooling in business activity in April. Despite this, the market does not anticipate rate cuts in the near future, with investors now pricing in the possibility of around 42 basis points of rate cuts by the Federal Reserve by the end of the year. This is a significant shift from the more than 150 bps expected at the beginning of 2024, indicating a belief that the Fed may be done with tightening.

Overall, the bond market is cautiously monitoring various factors such as oil prices, geopolitical tensions, and U.S. economic indicators to gauge future movements. The expectation of a pause in rate hikes by the Federal Reserve has influenced investor sentiment, with a focus on data strength determining the future direction of monetary policy.