Government bond yields are expected to stabilise after witnessing the surge in the previous week, as the domestic CPI data was along the expected lines, and the market lacks significant domestic cues.
The market will be closely monitoring the movement of crude oil prices given the geopolitical conflict heating up in the Middle East, said dealers.
“The crude oil prices are a concern right now, given the geopolitical tensions escalating in the Middle East. If prices go up significantly, FPIs might start pulling out the money they invested in the previous months,” said a dealer at a state-owned bank. “Apart from that, the market is at good levels and should remain stable, I am not expecting any major sell-off,” he added.
Heightened Middle East tensions involving Iran, Israel, and Hamas, led to the rise in crude oil prices as the potential for trade disruption loomed if conflict were to escalate between Israel and Iran. Brent crude settled at $90.45 a barrel on Friday. Meanwhile, ongoing conflicts in Ukraine, alongside escalating tensions in North Korea and Taiwan, added to geopolitical concerns.
Back home, CPI headline inflation eased to 4.85 per cent in March as compared to 5.1 per cent in February which was along the market expectation.
“Domestic inflation print is unlikely to have a major impact on yields as the print was largely in line with market expectations. We expect the 10-year yield to trade in the range of 7.15-7.25 per cent in the near-term, tracking an uptick in US yields and high crude oil prices,” said a note by HDFC Bank.
Higher-than-expected inflation data from the US indicated that interest rates will remain higher for longer. Consequently, the yield on the benchmark 10-year US Treasury note surged beyond the psychologically crucial 4.50 per cent mark. US CPI for March was 3.5 per cent, against the market expectation of 3.4 per cent.
“It has already moved to less than two cuts in the US. And June is completely priced out. The Fed has in their dot plot, where they have said they will cut three times. They have tried to defend their dot plot, but still, I think the market feels that the Fed might not be able to cut it,” said Naveen Singh, vice president of ICICI Securities’ primary dealership.
According to CME’s Fedwatch tool, only 25 per cent traders expect the US Federal Reserve to cut rates in June.
First Published: Apr 14 2024 | 5:59 PM IST