Core Viewpoint - The Indian government bonds have experienced a decline for the second consecutive week, influenced by hawkish commentary from the U.S. Federal Reserve and ongoing concerns regarding debt supply, which have negatively impacted investor appetite [7]. Group 1: Yield Movements - The yield on the 10-year benchmark ended at 6.4885%, slightly down from 6.5139% on Thursday, marking a marginal increase over the week after a rise of 2 basis points last week [1][7]. - Yields move inversely to prices, indicating a complex relationship between bond prices and interest rates [2][7]. Group 2: Federal Reserve Actions - The Federal Reserve reduced interest rates by 25 basis points and signaled the possibility of an additional 50 basis points of cuts in 2025, although Chair Jerome Powell emphasized a "meeting-by-meeting situation" regarding future rate cuts [2][3][7]. - The current rate cut cycle may not be extensive, as suggested by Gaura Sen Gupta, chief economist at IDFC First Bank [3][7]. Group 3: Local Market Dynamics - There are ongoing concerns in the local market regarding constant supply from the central and state governments, which has contributed to rising yields and altered demand-supply dynamics [5][7]. - Traders are anticipating the borrowing calendar from the central government for the second half of the fiscal year, expected to be published before the end of September [6][7]. - The Reserve Bank of India (RBI) has advised states to diversify their borrowing across different tenures instead of concentrating on long-term bonds and to communicate their fundraising plans more clearly [6][7]. Group 4: Overnight Index Swaps - India's overnight index swaps (OIS) rates showed mixed results, with the one-year OIS rate at 5.45%, the two-year OIS rate at 5.42%, and the liquid five-year OIS rate ending at 5.71% [7].

Federal Reserve Outlook - The Federal Reserve is expected to announce a 25 basis point cut in interest rates, with traders closely monitoring comments from Fed Chair Jerome Powell for indications of future cuts [1][7] - There is a consensus that the Fed will initiate a cutting cycle, with expectations of one cut per meeting moving forward [3][10] - The tone of the Fed's communication is anticipated to be dovish, indicating a shift towards a more neutral stance in response to recent economic data [12][14] Market Reactions - The market has priced in the expected rate cut, and historical patterns suggest that such events often lead to continued upward movement in asset prices [21][22] - Retail investors have been accumulating risk, while institutional investors have been slower to re-risk, potentially leading to a supportive environment for equities [22][23] - The long end of the treasury market may not see significant rallies, as the initiation of the cutting cycle could limit demand for long-duration bonds [19][20]