MUMBAI: Indian government bond yields fell on Monday tracking a decline in US Treasury yields, with the 10-year hitting a more than two-year low on Monday, while demand remains strong.

The benchmark 10-year yield was at 6.9216% as of 10:00 a.m. IST, compared with its previous close of 6.9419%. The yield fell to 6.9188%, its lowest since April 8, 2022, earlier in the session.

“Bulls have completely take over the bond market for now, and there are strong attempts to take the benchmark bond yield below the key technical level of 6.92%,” a trader with a primary dealership said.

US Treasury yields eased on Friday, and declined further in Asia hours on Monday, after data showed that US prices rose modestly in June, offsetting concerns about a higher-than-expected uptick in inflation.

The personal consumption expenditures (PCE) price index nudged up 0.1% last month after being unchanged in May. The core PCE price index rose 0.2% last month, following an unrevised 0.1% gain in May.

This was the last major data point before the Federal Reserve monetary policy decision on Wednesday, where investors are not expecting any rate action, but will pay close attention to Chair Jerome Powell’s remarks.

Investors have already factored in a 25 basis points rate cut in September, of which 14% are expecting the cut to be more than 25 bps, according to the CME FedWatch tool.

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

Back home, sentiment continues to remain favourable for bonds, as the Reserve Bank of India’s draft guidelines to bolster the liquidity resilience of lenders last week is expected to lead to a rise in demand form government securities.

At the federal budget last week, the government reduced fiscal deficit target for the current financial year to 4.9%, while reducing gross borrowing marginally to 14.01 trillion rupees ($167.35 billion).