Govt bond yields settle lower ahead of RBI's policy outcome

Indian government bond yields settled lower on Wednesday as market participants anticipated dovish commentary from the Reserve Bank of India (RBI) at its policy decision on Thursday.
 

India's benchmark 10-year yield ended at 7.0723%, following its previous close of 7.0904%.
 

"For RBI policy tomorrow, the template is set for a balanced pause," Anitha Rangan, an economist at Equirus Group, said.

"While liquidity is the key topic of discussion, we would expect RBI to remain (in) status quo, and index infusion inflows when absorbed in reserves will improve system liquidity eventually."
 

The RBI is expected to hold the key interest rate steady on Thursday, according to a Reuters poll, although policymakers' commentary remains key amid easing inflationary pressures and a fiscally prudent federal budget announcement last week.

 

The central bank has held its key interest rate steady at 6.50% in the last five consecutive policies.
 

The overall market sentiment has remained positive after the government said it aims to reduce the fiscal deficit and lower its gross borrowing by a wide margin next financial year.
 

India's benchmark bond yield could fall below the key policy rate before the central bank starts monetary easing in the second half of this year, boosting the case for buying long-term bonds now, Arun Srinivasan, head of fixed income at ICICI Prudential Life Insurance said.
 

U.S. yields eased on Tuesday but remained elevated, with the 10-year yield around 4.10%, as strong economic data and Federal Reserve Chair Jerome Powell's hawkish comments pushed back expectations on the timing of rate cuts in the world's largest economy.
 

The Fed not only reiterated the pause but also decisively pushed back March rate cuts, Rangan added.

The odds of a Fed rate cut in May have now declined to around 66% from 88% last week.