Government bond yields are expected to open marginally lower on Tuesday following a lower-than-expected domestic headline inflation print for July. Consumer Price Index (CPI) inflation was at 3.5 per cent in July, which was lower than the market expectation of 3.8 per cent. This news has implications for the bond market and investors as they anticipate how this data will impact yields.
The yield on the benchmark 10-year government bond settled at 6.88 per cent on Monday. This figure serves as a reference point for investors and analysts to gauge the movement of bond yields in response to economic data and market conditions. The market now awaits the release of US inflation data, which is scheduled to be released on Tuesday after market hours. This data will provide further insight into the global economic landscape and could influence bond yields in the coming days.
Sakshi Gupta, Principal Economist at HDFC Bank, commented on the potential impact of the lower-than-expected inflation print on government bonds. She noted that while the inflation data may lead to gains in government bonds at the open on Tuesday, the key driver of domestic yields will likely be the US CPI release and any changes in rate cut expectations by the Federal Reserve. This highlights the interconnectedness of global markets and the importance of monitoring economic indicators from various countries.
Market participants are anticipating that the benchmark yield will open around 6.85 per cent on Tuesday. However, they also acknowledge that stronger cues will be needed for the yield to soften below this level, given technical resistance in the market. V R C Reddy, head of treasury at Karur Vysya Bank, emphasized the positive impact of the lower inflation print and industrial growth data on the bond market. He expects the yield to open lower at around 6.85 per cent, but notes that there may be resistance at this level.
The article also highlights specific data points related to inflation and industrial growth in July. Food inflation fell to 5.4 per cent due to the base effect, while vegetable prices were also lower at 6.8 per cent. Industrial growth for the month came in at 4.2 per cent, slightly below market expectations. The Reserve Bank of India’s estimate suggests that headline inflation is expected to average around 4.4 per cent in the second quarter of the financial year, with food inflation being a major contributing factor.
In conclusion, the article provides a comprehensive overview of the factors influencing government bond yields in response to the latest inflation data. It underscores the importance of monitoring both domestic and global economic indicators to understand market trends and make informed investment decisions. Investors and analysts will continue to closely watch upcoming data releases and central bank actions to navigate the evolving financial landscape.