Debt market outlook 2024: Why has the environment turned favourable?

economictimes.indiatimes.com:

monetary policy will continue to be actively disinflationary keeping an eye on global cues & events, being strongly inter-related. Despite the core inflation steadily easing, food inflation remains volatile and broad-based & remains a key concern. A reasonable visibility on the potential attainment of ~4% inflation target and easing in policy rates from the developed markets could pivot the reaction by RBI in favour of a rate cut, possibly in Q2 FY24, we estimate a total of 50bps rate cuts in the next financial year.

Global Landscape:

US: Every US recession in the last 5 decades has been preceded by a yield curve inversion or negative term spreads. Since 1900, the yield curve has inverted 28 times; on 22 of these occasions, a recession has followed. There has often been a 22-month lag between curve inversion and the beginning of a recession. The US Yield Curve has been inverted since July 2022 signalling a recession where dates coincide with Fed guidance near May 2024. Recent FED’s dovish statements along with rate cut guidance surprised investors helping 10-year benchmark move below 4% mark. The question for bond yields to ease further will depend on the extent of a slowdown in the US economy. The dot plot also showed that members now expect indicates 75 bps rate cuts in 2024 and another 100 bps in 2025. We see US inflation slowing to 2.9% mark by June 2024 and to the 2.6% mark by December 2024 which would open up space for 75bps worth of cumulative rate cuts over the next calendar year starting from June 2024. Most of this pricing is getting reflected in yields with a 55bps fall in 10-year yield since November 2023. Nevertheless, a rate-cut cycle in the US should drive the dollar lower as is visible since November