'Bond yields in India may decrease further in September': Report

Indian government bond yields are expected to see a dip owing to current domestic and global factors. So far, the global economic growth has presented a nuanced picture amidst prevailing concerns regarding inflation and tightening financial conditions. Major central banks have maintained a cautious stance towards monetary policy as they navigate uncertainties in both inflation trends and economic stability. 

Ongoing trade tensions have persisted and significant developments in key regional trade agreements have had implications on global supply chains. Moreover, geopolitical uncertainties, particularly in energy-rich regions, have continued to be a significant factor, impacting energy prices.

In the Indian markets, there has been a sustained upward momentum with new highs being reached. This growth has been primarily fueled by substantial sector rotations that have bolstered high index levels. Retail investors have played a pivotal role in supporting market stability and mitigating the impact of foreign portfolio investors (FPI). The strong participation of domestic investors has laid a solid groundwork, contributing to the maintenance of a positive market trajectory.

The Indian debt market is regarded as one of the largest in Asia and serves as a viable alternative to traditional banking channels for financing purposes. It consists of two main categories - the government securities market (G-Sec) and the corporate bond market. 

Despite the momentum, Mirae Asset Mutual Fund's report stated that in India, the yields on government bonds are expected to decline in the near future. This decrease is likely to be influenced by significant global investment movements, propelled by the inclusion of Indian bonds in the JP Morgan index, potential changes in US monetary strategies, and apprehensions regarding the trajectory of worldwide economic development.

"August 2024 witnessed significant volatility in global debt markets. The month started with the Bank of Japan raising interest rates, followed by weaker labor market data from the US, leading to sharp fluctuations in risk assets worldwide and a notable decline in yields across major economies. In India, bond yields may decrease further due to global investment flows, driven by JP Morgan index inclusion, anticipated shifts in US monetary policy, and concerns about global economic growth," the report said. 

"Inflation is expected to ease, thanks to a strong monsoon that might reduce food price pressures, while core inflation is likely to remain stable. A shift in domestic monetary policy may occur in Q4 FY25, while a change in US monetary policy might be seen in the September or December 2024 meetings," it further said.