MUMBAI, June 5 (Reuters) - Indian government bond yields reversed an early dip and was largely flattish on Wednesday as investors remained apprehensive about the implications of Prime Minister Narendra Modi's smaller victory margin in his third term.
India's benchmark 10-year yield was at 7.0467% as of 10:00 a.m. IST, following its previous close of 7.0382%. The yield saw its biggest single-session climb since Oct. 6 on Tuesday.
"We may not see any major selloff from these levels, but at the same time, there is no immediate trigger to add more positions, which means there could be consolidation in the near term around 7.05% levels," a trader with a private bank said.
While the ruling Bharatiya Janata Party (BJP) won 240 seats, short of a simple majority in the 543-member house, the party-led National Democratic Alliance (NDA) were winners in 293 seats, surpassing the 272-mark needed to form the government.
Exit polls over the weekend had projected a much bigger victory margin, while the NDA had set a target of over 400 seats.
HSBC said factors beyond elections, including a peak in interest rates and favourable demand-supply conditions, are aligned for lower bond yields, while DBS said a complete reorientation towards competitive populism is not on the cards.
Traders will now focus on the Reserve Bank of India's monetary policy decision due on Friday, wherein a majority of the market participants expect a status quo on rates and stance.
Meanwhile, U.S. yields fell further, after job openings, a measure of labour demand, fell to the lowest level since February 2021, boosting expectations of a Federal Reserve rate cut later this year.
The 10-year U.S. yield declined to its lowest level in three weeks on Tuesday and was below the key level of the 4.35% mark. The odds of a rate cut in September have risen to 65%, up from 46% a week earlier, according to the CME FedWatch tool. (Reporting by Dharamraj Dhutia; Editing by Sohini Goswami)
