Govt bond yields edge lower as oil prices stabilises, awaits fresh triggers

Indian government bond yields ended lower on Tuesday as oil prices stabilised on easing fears of an escalation of the Middle East conflict, with market participants now awaiting fresh triggers.

The benchmark 10-year yield ended at 7.1643%, after closing at 7.1890% in the previous session.
 

"Markets are trending between reacting and relaxing on geopolitical risks," said Anitha Rangan, an economist at Equirus Group.

Oil futures fell on Monday as traders focused on market fundamentals, seeing little near-term risk that the Middle East conflict would impact supply.
 

The benchmark Brent crude contract, which had crossed $92 per barrel earlier this month on fears of an escalation in the Middle East conflict, was trading around $87 per barrel in Asia hours.
 

Oil prices affect retail inflation as India is one of the largest importers of the commodity. Elevated prices could make the Reserve Bank of India's (RBI) inflation target more difficult to achieve.
 

The central bank has hinted that rate cuts will start once inflation meets its 4% target on a sustainable basis.
 

India needs to cut interest rates to help its economy reach its potential growth but members of the South Asian nation's monetary policy committee are divided on the timing of such cuts.
 

U.S. Treasury yields were largely unchanged after recent remarks from Federal Reserve officials hinted at no urgency to cut rates.

"The path for (the U.S.) rate cuts will get noisier and more challenging. Despite geopolitics, however, the Fed's case for rate cuts was anyway getting grim, Middle East tensions perhaps reaffirmed the theory," Rangan added.
 

Investors are pricing in the possibility of around 40 basis points (bps) of rate cuts by the Fed by the end of the year, compared with more than 150 bps expected at the start of 2024, according to the CME's FedWatch Tool.
 

Earlier in the day, Indian states raised 120 billion rupees through the sale of bonds, below the planned quantum for the third consecutive week.