Indian 10-yr bond yield posts biggest monthly fall in more than 4 years

MUMBAI, May 31 (Reuters): Indian government bond yields declined on Friday as US Treasury yields eased, with the government's strong cash position further aiding sentiment.
The benchmark 10-year yield ended at 6.9809 per cent, following its previous close of 6.9966 per cent. The yield fell 21 basis points in May, its biggest monthly fall since March 2020.
"Depending on election outcome, government will have the choice to either prune the fiscal deficit by a reduction in the planned gross borrowings, or to increase its discretionary spending via an increase in the capital expenditure," Aditya Vyas, an economist with STCI Primary Dealer said.
US yields moved lower, with the 10-year yield falling to near 4.30 per cent, after easing inflation increased bets of rate cuts by the Federal Reserve jumped.
However, comments from Fed officials again raised uncertainty over the magnitude of easing in 2024. Futures are now pricing in around 35 bps of cuts in 2024, according to the CME FedWatch Tool.
Back home, the government's healthy cash positioned strengthened further after a record surplus transfer from the Reserve Bank of India, and this has raised speculations of cuts in borrowing once the new government takes charge.
The government also bought back bonds worth around 230 billion rupees ($2.76 billion) maturing this financial year through four auctions, in the first such operation in six years.
New Delhi has also reduced supply of Treasury Bills by 600 billion rupees till the end of June, and also borrowed 60 billion rupees less at an auction on Friday, by not accepting any bids for green bonds.