Indian government bonds traded within a narrow band early on Monday. Steadier oil prices supported sentiment, while traders stayed cautious ahead of key inflation figures from both India and the United States.
Brent crude was near $98 a barrel, barely moved from Friday. The calm followed comments from US President Donald Trump on Sunday, when he said he was very unlikely to order fresh strikes on Iran while talks to end the conflict continued.
Supply is also rising. Indian states will sell bonds worth 290.5 billion rupees ($3.10 billion) later in the day, and the debt market will be closed on Tuesday for a local holiday.
Yields near last week’s lows
The benchmark 6.94% bond maturing in 2036 yielded 7.1752% at 10:55 a.m. IST, little changed from Friday. Last week, yields fell 22 basis points, their steepest weekly decline in nearly seven years. The drop came after a Democratic sweep in the US midterm elections revived hopes of a resolution to the Iran war.
Crude fell more than 16% after the midterms, and the 10-year US yield shed about 7 basis points. That eased concerns about India’s inflation, currency and fiscal outlook, and led traders to sharply reprice their expectations for the Reserve Bank of India’s interest rate path.
What could come next
Traders said further gains would need a lasting US-Iran agreement and another drop in oil prices. Umesh Tulsyan, managing director at Sovereign Global Markets in New Delhi, said the 10-year yield could stay within a range for some time. He added that it could move lower after the December policy meeting.
Indian bonds outperformed other Asian markets last week, as foreign investors bought more than 83 billion rupees of index-eligible bonds.
Inflation data on Thursday
Attention now turns to India’s October inflation figures, due on Thursday. A Reuters poll expects consumer inflation to rise to 5.93% from 5.54% in September.
Swap rates ease
Overnight index swaps fell further in early trade as oil prices steadied. The one-year OIS rate dropped 3.25 basis points to 6.3%, the two-year rate fell 2.5 basis points to 6.32%, and the five-year rate slipped 4 basis points to 6.44%.
The rupee was quoted at 93.8375 to the US dollar.