Indian government bond yields are anticipated to begin the week of August 4, 2025, with a downward trend, influenced by a decline in U.S. Treasury yields following weaker economic data that has increased expectations of a U.S. rate cut in September.
The yield on the benchmark 10-year bond is expected to fluctuate between 6.33% and 6.36%, according to a trader at a private bank. On Friday, it closed at 6.3680%.
Weaker U.S. economic data may not drastically alter the market, but it will boost confidence among those anticipating a rate cut, encouraging them to increase their positions. Treasury yields experienced a sharp decline, particularly in shorter-term notes, which are more sensitive to interest rate changes, after data revealed a more significant slowdown in U.S. job growth than anticipated in July. The figures for June were also revised downwards considerably.
Nonfarm payrolls saw an increase of 73,000 jobs in July, following a revised increase of 14,000 in June. Economists had predicted an increase of 110,000. The unemployment rate increased from 4.1% in June to 4.2% in July. Following the release of this data, the likelihood of a Federal Reserve rate cut in September has risen above 80%, compared to approximately 60% the previous week, as indicated by the CME FedWatch Tool.
Meanwhile, the Reserve Bank of India (RBI) is scheduled to announce its monetary policy decision on Wednesday. The majority of economists polled by Reuters anticipate that the authority will maintain the current rates. Despite this, some market participants are still betting on a rate cut this week, encouraged by the drop in June retail inflation to a more than six-year low. At its previous meeting in June, the central bank shifted its stance to "neutral" while reducing the benchmark rate by 50 basis points.
Overnight index swap (OIS) rates in India are expected to see receiving interest as local bond yields decrease, mirroring the drop in U.S. yields. The one-year OIS rate concluded at 5.51%, and the two-year OIS rate finished at 5.47%.
