MUMBAI: Indian government bond yields are expected to ease marginally in early trading on Wednesday as investors bake in the implications of Prime Minister Narendra Modi’s smaller victory margin, while globally, US yields dropped.

India’s benchmark 10-year yield is likely to move in a 6.99%-7.05% range, following its previous close of 7.0382%, a trader with a state-run bank said.

The yield saw biggest single-session climb since Oct. 6 on Tuesday.

“I think the final tally for election results has already been factored in as far as bond markets are concerned, and today we may see some positive moves as PM Modi is set to form the government one more time,” the trader said.

The Modi-led ruling Bharatiya Janata Party won 240 seats, short of a simple majority in the 543-member house, while the an alliance led by him fell short of crossing the 300 seat mark.

Exit polls over the week-end had projected a much bigger margin of victory.

HSBC said the initial rally in government bonds after exit polls more than reversed on results day, but factors beyond elections, including a peak in interest rate cycle and favourable supply and demand conditions, are still aligned for lower bond yields.

Traders will now focus on the Reserve Bank of India’s monetary policy decision due on Friday.

India bonds not reacting to strong domestic growth, yields little changed

Citi Research is holding to their first rate cut call in October but acknowledges that the fiscal path will have to be brought more proactively into framework and rates market could be more alert on fiscal slippage.

Meanwhile, US yields fell further, after job openings, a measure of labor demand, fell to lowest level since February 2021, boosting expectations of a Federal Reserve rate cut later this year.

The odds of a rate cut in September have risen to 65%, up from 46% a week ago, according to CME FedWatch tool.