The yield on the 10-year US Treasury note hovered around 4.53% on Tuesday, falling further from last week’s 4.6% peak, its highest level since early May. The extended decline followed a shift to bonds amid a Wall Street sell-off. At the same time, markets digested hawkish signals from the FOMC's latest dot plot, which included upward revisions to PCE inflation and federal funds rate forecasts. Meantime, uncertainty remains over whether the economic backdrop might justify deeper rate cuts. November’s modest core PCE inflation growth signaled subdued price pressures, while mid-December data showed continuing unemployment claims at a three-year high. Further, the Chicago PMI unexpectedly fell, highlighting manufacturing weakness, while pending US home sales rose for a fourth month in November to their highest since early 2023. For 2024, the 10-year yield climbed 50bps, driven by the slow pace of disinflation and inflation risks tied to President-elect Trump’s proposed policies.
The yield on the 10-year G-Sec rose to over 6.8% in December, the highest in one month, and tracking the selloff for bonds with exposure to US credit markets after the Federal Reserve delivered hawkish projections for the upcoming year. Domestically, bonds were also pressured by the aggressive outflow of capital from Indian markets as slowing growth reduced confidence in New Delhi's fiscal strength, driving Asian investors to pivot elsewhere. The Indian GDP expanded by 5.4% annually in the quarter ending September, the least in seven quarters, prompting the RBI to lower its growth projections for the current financial year to 6.6% from 7.2%. Consequently, markets expect the central bank to commence lowering its key rate by the end of the financial year, limiting the pressure on G-Sec prices.
