INDIA BONDS-India bond yields may dip with investor focus shifting to US yields

MUMBAI, June 6 (Reuters) – Indian government bond yields
are expected to ease marginally early in the session on Thursday
as investors price in the impact of Prime Minister Narendra
Modi’s smaller victory margin while focusing on declining U.S.
yields.

India’s benchmark 10-year yield is likely to
move in a 6.99%-7.04% range, following its previous close of
7.0272%, a trader with a state-run bank said.

“Investors may start putting the election results behind and
focus on other factors like the sharp fall in Treasury yields
over the last few days,” the trader said.

U.S. yields continued their decline on weaker-than-expected
job growth data ahead of Friday’s highly anticipated government
employment report for May.

The weak economic data this week has boosted expectations
that the U.S. Federal Reserve will deliver two rate cuts of 25
basis points (bps) each this year.

The odds of a rate cut in September have risen to 69%, up
from 47% a week ago, while the Fed is pegged to cut rates by 49
bps in 2024, according to the CME FedWatch tool.

Back home, the Modi-led ruling Bharatiya Janata Party won
240 seats, short of a simple majority in the 543-member house,
while an alliance led by him fell short of crossing the 300-seat
mark. Exit polls over the weekend had projected a much bigger
margin of victory.

Fund managers said Indian government bonds will continue to
attract foreign flows even as a narrower-than-expected victory
margin for the Modi-led alliance could prompt a shift in policy.

Traders will also focus on the Reserve Bank of India’s
monetary policy decision due on Friday, wherein most market
participants are anticipating a status quo in rates as well as
stance, while guidance on inflation, as well as liquidity
management, would be the key.
KEY INDICATORS:
** Brent crude futures 0.4% higher at $78.75 per barrel,
after rising 1.1% in previous session
** Ten-year U.S. Treasury yield at 4.2929%, two-year
yield at 4.7368%
** RBI to buy back four securities aggregating to 400 billion
rupees ($4.80 billion) via auction
($1 = 83.3930 Indian rupees)
(Reporting by Dharamraj Dhutia; Editing by Sohini Goswami)