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Illustration: Ajay Mohanty
Government bond yields fell on Friday amid rising expectations of a significant rate cut by the US Federal Reserve next week, said dealers. The probability of a 50 basis point rate cut by the US rate-setting panel rose to 43 per cent on Friday, against the earlier probability of 15 per cent, according to the CME Fed Watch tool.
The yield on the benchmark 10-year government bond settled at 6.79 per cent, the lowest since March 30, 2022. On Thursday, it settled at 6.81 per cent.
The benchmark yield fell to 6.78 per cent during the day; it gave up some gains by the end of the day as some traders wound up their positions ahead of the weekend, said dealers.
“The market now sees that there is going to be a cut, a 25 basis points or 50 bps, and this might put pressure on the RBI to at least change the stance in October policy. This is leading to the rally in the market,” said Naveen Singh, vice-president of ICICI Securities’ primary dealership.
The longest tenure government bond, the 50-year bond, yield fell below 7 per cent for the first time on strong demand from insurance companies and pension funds, said dealers. The entire yield curve of government bonds has shifted below the crucial 7 per cent mark.
“The market is front-running the 50 basis points rate cuts expectations,” said a dealer at a state-owned bank. “The long-term bonds are most sensitive to rate view, so there was more movement there. In longer tenure, there was demand from insurance and pension funds,” he added.
Market participants said that the demand for ultra-long government securities will continue given the favourable demand-supply dynamic.
The sentiment was also positive given the supply cut in treasury bills for the month of September. However, gains in short-term bonds were limited as the RBI Governor Shaktikanta Das said on Friday that the domestic rate-setting panel will stay resolute despite a slight easing in inflation, and there is no rush to cut rates just yet. The RBI had cancelled the last two auctions of treasury bills in the current month.
“We are not going to have auctions of treasury bills for the last two weeks, which led to the rally in short-term bonds, but the statement by the RBI governor led to some limits,” said a dealer at another state-owned bank.
Market participants said that the benchmark bond yield is expected to trade in a range of 6.75-6.80 per cent in the near term. In the current financial year, the benchmark yield fell by 29 basis points, whereas in the current calendar year, it softened by 38 bps.
First Published: Sep 13 2024 | 7:41 PM IST
