India bonds consolidate as traders seek fresh cues

Synopsis

Indian government bonds showed minor fluctuations as market participants remained cautious, looking for new cues. Meanwhile, oil prices settled amidst ongoing concerns over a possible peace deal between the U.S. and Iran. Investors seemed unfazed by recent inflation statistics from both the domestic scene and the U.S., which reinforced the view that interest rate adjustments from either central bank are unlikely soon. The recent dip in U.S.

Indian government bonds were largely unchanged on Thursday as traders searched for fresh cues, while oil prices consolidated due to uncertainty over a U.S.-Iran peace deal.

Investors shrugged off Wednesday's domestic and U.S. inflation data, which reinforced expectations that neither central bank would move on rates soon, ‌traders said.

The ⁠benchmark ⁠6.94% 2036 bond yielded 6.7748% at 11:25 a.m. IST, barely changed from Wednesday. Bond ​yields move inversely to prices.

Benchmark Brent crude held near $88.9 a barrel in Asian trading, ​as Iran and the United States remained at loggerheads over a deal to end the Gulf war, a senior Iranian source told Reuters, who ​said there had been no progress ⁠on reviving an interim ‌pact agreed in June.

As the world's third-largest oil importer, India benefits materially from lower crude prices, which ease ⁠imported inflation and current-account pressures, strengthen the macro outlook and make room for lower bond yields.

Late on Wednesday, data ​showed U.S. retail inflation edged up 0.1% in July after declining in June, while annual inflation slowed to 3.4% from 3.5%.

"Two muted inflation prints in a row should be sufficient to quell worries that price pressures are broadening beyond energy," DBS Bank said, adding that ‌softer labour-market momentum reduced the case for near-term Federal Reserve tightening.

The U.S. 10-year yield was little changed after the ​data.

"Lower U.S. inflation ​and reducing Fed ⁠hike bets reinforce the case for a prolonged rate pause in India, keeping bonds rangebound," a private-bank trader said.

India's retail inflation rose to 4.45% ​in July from 4.38% in June.

India's overnight index swaps drew receiving interest after U.S. inflation data soothed rate hike worries.

The one-year rate fell 1 bp to 5.76%, the two-year rate was slightly lower at 5.9550%, and the liquid five-year rate slipped 1 bp to 6.2725%.

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