Government bond (G-sec) yields are expected to stabilize after seeing a rise in the previous week on the back of institutional demand at technical levels, dealers said.
Additionally, domestic consumer price index (CPI) data was in line with expectations and the market currently lacks meaningful domestic indices.
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The market will closely monitor crude oil price developments as conflict intensifies in West Asia, dealers said.
“The growing tension between Iran and Israel has plunged this region into a deeper crisis. The incessant geopolitical tensions will lead to a rise in crude prices which will be a big concern for us,” said VRC Reddy, head of treasury at Karur Vysya bank.
“The 10-year bond yield jumped to 7.18 percent due to global factors despite favorable CPI. Pressure on yields will continue next week, supported by global uncertainties. However, at this level, institutional demand will decrease if it continues to increase. Ten-year bonds will trade in a range between 7.15 and 21,” he added.
Heightened tensions in West Asia, involving Iran, Israel and Hamas, have led to higher crude oil prices. This comes as the risk of trade disruption looms if conflict escalates between Israel and Iran.
Brent crude stabilized at $90.45 per barrel on Friday. At the same time, ongoing conflicts in Ukraine, as well as escalating tensions in North Korea and Taiwan, have added to geopolitical concerns.
Bond yields reversed in April after showing a downside bias in March, driven by rising U.S. yields and delayed rate cut expectations.
The benchmark 10-year government bond yield has hardened by 12 basis points (bps) in April so far. It stood at 7.18 percent on Friday.
In our country, headline CPI inflation fell to 4.85 percent in March from 5.1 percent in February. This matched market expectations.
“Domestic inflation figures are unlikely to have a major impact on returns as they were largely in line with market expectations. We expect the 10-year yield to trade in a range of 7.15 to 7.25 percent in the near term, tracking an uptick in U.S. yields and high crude oil prices,” a note said. of HDFC bank.
Higher-than-expected U.S. inflation data indicates interest rates will remain high for longer. As a result, the yield on the 10-year US Treasury note surged past the psychologically crucial 4.5 percent mark. US CPI for March was 3.5 percent, compared to market expectations of 3.4 percent.
“In the United States, the reductions have already fallen to less than two. And June is completely overpriced. The Fed, in its dot chart, had announced that it would cut rates three times. Even though it has tried to defend its dot plot, the market believes that the Fed may not be able to reduce it,” said Naveen Singh, vice-president of dealer principal at ICICI Securities.
According to the CME’s Fedwatch tool, only 25 percent of traders expect the US Federal Reserve to cut rates in June.
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