What’s going on here?
Indian government bond yields dropped in early trading on July 30, 2024, with the benchmark 10-year bond yield slipping to 6.9145% – its lowest level in over two years.
What does this mean?
Several factors have driven Indian bond yields downward. Increased demand from domestic banks has been a key force, pushing yields lower. During the session, yields hit a low of 6.9088%, a level unseen since April 7, 2022. A trader from a state-run bank suggested that the yield could test 6.90%, contingent on the Federal Reserve’s upcoming policy direction. Furthermore, the Reserve Bank of India’s draft guidelines to enhance lenders’ liquidity resilience might spur increased demand for government securities. Both private and state-run banks have been actively purchasing bonds, a trend expected to persist this week.
Why should I care?
For markets: Navigating the waters of uncertainty.
US bond yields have also been sliding as investors look ahead to the Federal Reserve’s upcoming policy announcement, with many expecting a dovish tone. According to the CME FedWatch tool, investors are pricing in 66 basis points of rate cuts by year-end. A confirmation from the Fed could cement expectations of a 75 basis points reduction in 2024, impacting bond markets globally.
The bigger picture: Global economic shifts on the horizon.
Oil prices have continued their decline, with Brent crude futures falling below $80 per barrel for the first time in seven weeks due to concerns about Chinese demand. For India, a major crude importer, lower oil prices bode well for its inflation outlook. Additionally, the Indian government’s plan to sell bonds worth 220 billion rupees ($2.63 billion) on Friday and states raising 295 billion rupees through debt sales later in the day could further influence market dynamics.