On Tuesday, Indian government bond yields fell, propelled by strong demand from domestic banks. The 10-year benchmark yield hit its lowest level in two years, reflecting the impact of the Reserve Bank of India's recent liquidity guidelines for lenders. Market participants are also closely watching for the Federal Reserve's upcoming policy decision, which could further influence market trends.
In early trading on Tuesday, Indian government bond yields pulled back as domestic banks continued to show strong demand. The benchmark 10-year bond yield reached its lowest point in over two years.
As of 10:00 a.m. IST, the benchmark yield stood at 6.9145%, down from the previous close of 6.9184%. Earlier in the session, it dipped to 6.9088%, marking its lowest level since April 7, 2022.
"A sustained demand from local banks is evident, and we might test the 6.90% level today. However, any further movement will likely depend on the Federal Reserve's policy decision," remarked a trader from a state-run bank.
Demand from local banks has risen following the Reserve Bank of India's release of draft guidelines aimed at enhancing the liquidity resilience of lenders. If implemented, these guidelines could boost demand for government securities.
US Treasury yields softened on Friday and fell further during Asian trading hours on Monday, following data that showed only a modest increase in US prices for June. This eased concerns about a larger-than-expected rise in inflation.
The Personal Consumption Expenditures (PCE) price index edged up by 0.1% last month, compared to no change in May. Meanwhile, the core PCE price index increased by 0.2% in June, following an unchanged 0.1% rise in May.
Investors will closely monitor Chair Jerome Powell's remarks, as any dovish signals could strengthen expectations for a 75 basis point rate cut in 2024. According to the CME FedWatch tool, the market has priced in 66 basis points of rate cuts by the end of this year.
Supporting market sentiment, oil prices continued their decline from Monday, with benchmark Brent crude futures falling below $80 per barrel for the first time in seven weeks. This drop is driven by concerns over weaker Chinese demand.
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