Government bond yields to remain steady ahead of debt buyback

Government bond yields: The government bond yields are set to remain steady in early trading on Thursday as market participants await the government's scheduled buyback of securities amidst a lack of fresh catalysts.

According to a trader from a private bank, the benchmark 10-year yield is expected to fluctuate within a range of 7.10 per cent to 7.15 per cent, reflecting its previous close of 7.1343 per cent.

"The prevailing sentiment has remained upbeat following the announcement of the bond buyback, which is likely to continue supporting bond yields along with the subdued trends in the US bond market," the trader noted.

The Reserve Bank of India's planned buyback of bonds worth up to Rs 40,000 crore ($4.79 billion) on Thursday is anticipated to inject liquidity into the banking system, which has experienced a deficit in recent weeks.

"This buyback announcement aims to reduce the government surplus and alleviate liquidity pressures in the banking sector," explained Puneet Pal, Head of Fixed Income at PGIM India Mutual Fund.

Pal further highlighted the expected dividend from the RBI to the government for the fiscal year 2024, estimated at around Rs 85,000 crore, which is set to further increase liquidity in the banking sector.

However, ICICI Securities Primary Dealership anticipates the dividend to be higher, at Rs 1.2 lakh crore.

Meanwhile, the 10-year US yield has remained steady around 4.50 per cent, with traders pricing in a 66 per cent likelihood of the Federal Reserve making a policy shift in September, potentially implementing a 25 basis point cut at that meeting, as indicated by LSEG's rate probability app.

In recent weeks, the futures market had accounted for only one rate cut amid persistent inflationary pressures and robust economic indicators.

(With Reuters inputs)