Indian Bond Yields Likely to Dip Following U.S. Trends

Indian government bond yields are expected to see a slight decline in early trading on Tuesday, influenced by a continued drop in U.S. Treasury yields. However, the decline may be limited due to a larger-than-expected issuance of Indian state bonds, which could increase supply pressure in the market.

According to a trader from a private bank, the benchmark 10-year yield is projected to fluctuate between 6.71% and 6.75%, compared to its previous close of 6.7383%.

"Given the significant correction in U.S. Treasuries over the past few days, bonds may open with a positive bias," the trader noted. "However, any decline is expected to be offset by selling pressure as traders adjust for the upcoming large state debt auction."

Invest in Indian Markets and Unlock Future Potential With 5paisa!

Open Account Now

U.S. Treasury Yields and Global Impact

On Monday, longer-term U.S. Treasury yields extended their decline following weaker-than-expected data on the manufacturing sector. The benchmark 10-year U.S. Treasury yield fell to its lowest level in nearly four months, with additional drops observed during Asian trading on Tuesday.

The decline in yields came after February’s U.S. manufacturing data showed steady production levels but a surge in factory gate prices, reaching a nearly three-year high. Additionally, longer delivery times for materials suggested that import tariffs could soon impact production costs.

Adding to market concerns, U.S. President Donald Trump reaffirmed that a 25% tariff on imports from Mexico and Canada would take effect from Tuesday, raising fears of a potential trade war in North America. This development rattled financial markets, causing a flight to safer assets such as government bonds.

Domestic Bond Supply and Market Outlook

Meanwhile, Indian states plan to raise 505 billion rupees ($5.78 billion) through bond issuances, exceeding the scheduled amount by over 100 billion rupees. This month, states are expected to raise an additional 1.35 trillion rupees through three more auctions, further adding to supply-side concerns.

A significant portion of state bond issuance is concentrated at the longer end of the yield curve, coinciding with reduced demand for long-duration securities due to uncertainty surrounding the Reserve Bank of India’s (RBI) future debt purchase plans.

Despite recent softening inflation data, bond traders remain cautious about the possibility of the RBI conducting open market operations (OMO) purchases, which could help absorb excess bond supply. Market participants will closely watch upcoming economic data, global interest rate trends, and crude oil price movements for further cues.

Key Indicators:

• Brent crude futures: Down 0.7% at $71.15 per barrel after a 2.1% decline in the previous session.
• U.S. Treasury yields: 10-year yield at 4.1418%, two-year yield at 3.9269%.
• Indian state bond issuance: 505 billion rupees in bond sales, exceeding prior estimates.
• RBI operation: 1-day variable rate repo auction for 250 billion rupees.

With global bond markets experiencing heightened volatility and domestic supply concerns persisting, Indian government bond yields may see a limited downside in the near term. Investors will keep a close watch on domestic inflation trends, U.S. Federal Reserve policy signals, and any further developments regarding India’s fiscal position.