The yield on the Indian 10-year G-Sec eased to 6.35%, trimming the rebound that topped at 6.4% on June 23rd amid lower concerns that the conflict between Iran and Israel would hamper Indian access to oil and trigger a rebound in inflation. Uninterrupted flows of fuel tankers into the Indian Ocean from the Persian Gulf drove oil benchmarks to erase its surge, easing the refining costs for domestic firms. Consequently, investors continued to focus on the low inflationary backdrop in India and the dovish response by the RBI. The headline inflation rate fell by more than expected to 2.82% in May, the lowest in over six years, and well under the RBI's midpoint target of 4%. The RBI delivered a sharper-than-expected rate cut in its June meeting to lower benchmark borrowing costs to 5.5%. The central bank also delivered a series of liquidity injections into commercial banks after the its defense of the rupee drained domestic reserves and tightened financing conditions.
The yield on the 10-year US Treasury note was near the 4.3% threshold on Wednesday, remaining around seven-week lows, as markets assessed the Fed's policy outlook amid lower concerns of escalation in the Middle East. Chairman Powell maintained his cautious rhetoric on the second day of testimony before Congress, stressing that the central bank requires less economic uncertainty before delivering rate cuts, but hinting that it may be appropriate to loosen policy if tariffs are not as aggressive as feared in early April. Meanwhile, energy prices held most of their declines as oil and LNG tankers navigated freely in the Middle East. Rate futures continued to show that markets favor expectations of two rate cuts this year, but a larger portion of investors are positioned for three cuts compared to the start of the month.
