Govt bond yields track US peers lower on expectation of political stability

Indian government bond yields started the week lower, tracking a sharp drop in their US peers and on expectations of political stability after India's ruling party won key state polls.
 

India's 10-year benchmark bond yield ended at 7.2699%, after ending the previous session at 7.2899%.
 

"The US 10-year has corrected meaningfully from the peak, in line with incoming data and the central bank narrative," said Parijat Agrawal, head of fixed income at Union Asset Management Company.
 

"Concerns around oil prices have reduced and (prices) have been close to around $80 (per barrel) for a few weeks now." US Treasury yields dropped on Friday after Fed Chair Jerome Powell's comments fanned optimism that the central bank was done hiking rates.
 

 

The probability of a rate cut in March is above 66% and traders are near certain of a cut in May, which pushed the US 10-year yield to a three-month low. It was last around 4.25%.

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India's ruling nationalist Bharatiya Janata Party (BJP) won regional votes in three of four major states, in a big boost for Prime Minister Narendra Modi ahead of national elections due by May.
 

Traders also await the outcome of the Reserve Bank of India's monetary policy meeting on Friday. The RBI is expected to hold rates at 6.50% for a fifth consecutive meeting as inflation worries ebb, according to a Reuters poll.
 

"Although the monetary policy committee (MPC) will emphasise on bringing inflation to the 4% target, we expect the MPC to remain on pause on rates and stance," Agrawal said.
 

"Markets will keenly look for guidance on systemic liquidity and Open Market Operations."
 

The RBI had, in October, said it would sell bonds to suck out additional liquidity, and that pushed yields higher.
 

However, the central bank has not conducted any auctions as yet and has stopped secondary sale of papers since the last few weeks.
 

(Reporting by Bhakti Tambe; Editing by Savio D'Souza)