US jobs data negated the spending cuts of USD 85 billion that kicked in March 2013 leading to the Dow closing last week at record highs. The US economy added a larger than expected 236,000 jobs on the month of February and the unemployment rate dropped to a four year low of 7.7%. The strong job growth numbers point to the positive effects of the US Federal Reserve’s (Fed) stimulus, in the form of near zero interest rates and monthly bond purchases of USD 85 billion, on the economy.
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The RBI is expected to cut the benchmark policy rate the repo rate by 25bps in its mid term policy review on the 19th of March. Bond markets are starting to factor in the 25bps repo rate cut in bond yields. The benchmark ten year government bond the 8.15% 2022 bond saw yields drop by 6bps week on week on the back of rate cut expectations. Government bond yields are likely to drop further as the bond market positions for an expected cut in repo rates.
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