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Indian bond yields nudged up slightly due to new debt issues, ending a seesaw week, while US Treasury yields dipped on hopes of rate cuts.

What does this mean?

The Indian bond market is maintaining its poise amid fluctuations driven by fresh government debt supplies. Contrastingly, US Treasury yields dropped thanks to optimistic outlooks for interest rate cuts after pleasing inflation data. Investors are eagerly eyeing crucial upcoming events, including India's federal budget on February 1, 2025, and the Federal Reserve's monetary policy announcement later in January, which is likely to retain current rates but suggest potential cuts on the horizon. Despite the uncertainty, India's recent bond auction saw cutoff yields slightly surpass expectations as 360 billion rupees ($4.16 billion) in bonds were issued. Meanwhile, lower US yields brought the 10-year Indian bond yield down to 6.7653% from its 6.8689% peak earlier in the week.

With multiple US rate cuts on the horizon -- highlighted by a Fed Governor forecasting a reduction of up to 42 basis points -- global bond markets could see a rise in activity. This anticipation boosts emerging market bonds like India's, as central banks might shift toward growth-oriented policies, potentially driving yields lower.

The bigger picture: Emerging optimism and challenges.

The oscillation in bond yields mirrors a broader economic narrative. With India's borrowing poised to reach 15 trillion rupees in the upcoming fiscal year, strategies to support growth amid fiscal pressures will be crucial. Edelweiss predicts a positive trend for Indian bonds, projecting a yield decline towards 6.50% in the first half of 2025 as central banks lean towards accommodative stances in response to changing market conditions.