The decline in government bond yields followed a similar trend in US Treasury yields, which softened after the recent US Federal Reserve meeting. During the meeting, the rate-setting panel chose to maintain the current rates and upheld its projection for three rate cuts throughout 2024. According to CME’s FedWatch Tool, the anticipation of a rate cut in June increased to around 74 percent following the Fed’s decision, up from 59 percent a week earlier.
The positive sentiment in the market post the Fed meeting was driven by the announcement of three rate cuts. Additionally, the demand at the state development loan auction was robust. Two states collectively raised Rs 24,000 crore at the last state bond auction of the financial year. The cut-off yield on the 10-year state bond was fixed at 7.42 percent, a decrease from the previous week's range of 7.44 percent to 7.5 percent.
While banks participated in the auction, major contributors were pension funds and insurers. Market analysts anticipate that the yield on the benchmark 10-year government bond will likely remain around 7.05 percent. They suggest that another positive development would be required for it to decrease further.
In parallel, the Reserve Bank of India (RBI) conducted a five-day variable rate repo auction due to the approaching Rs 1 trillion deficit liquidity in the system. Market participants noted that the weighted average overnight money market rates rose to 6.73 percent, nearing the marginal facility rate.
