India bonds flat, major move likely only after US inflation data

Synopsis

Indian government bonds remained mostly stable on Wednesday, with traders eyeing important US inflation statistics expected later that day. The local retail inflation for July edged up to 4.45 percent, while oil prices declined slightly following news of a ceasefire extension. Overnight index swap rates showed little change, reflecting expectations surrounding the upcoming US economic data.

Indian government ​bonds ended little changed on ​Wednesday as traders awaited the latest U.S. inflation data ​due later in the day, after the local price data was largely in line with estimates.

Oil prices eased marginally to around $88 per barrel after media ‌reports that ⁠the ⁠U.S. and Iran have agreed to extend a 60-day ceasefire set to ​expire on August 17, according to sources.

The yield on India's benchmark 10-year government bond ended at 6.7776%, against 6.7791% at previous close. Bond yields move inversely to prices.

Meanwhile, India's retail inflation for July rose ​4.45%, up from 4.38% in June and against ⁠4.50% forecast ‌in a Reuters poll.

The U.S. inflation report, ​due after ​Indian market hours, is expected to be more ⁠influential, and a stronger-than-expected reading could lead markets to ​price in a more hawkish Federal Reserve stance ​and push up Treasury yields.

"More so than the labour market, the Federal Reserve's focus has shifted more towards the inflation side of the mandate, and as such, while the weaker-than-expected non-farm payrolls numbers last week helped, inflation numbers are arguably more important," ‌MUFG said in a note.

Still, underlying sentiment for prices remained supportive as expectations of an immediate hike ​in policy ​rates by the Reserve ⁠Bank of India have abated after dovish guidance by the central bank last week, when it kept its policy rates unchanged.

RATES

India's overnight ​index swap rates ended largely unchanged, and are set to show major reaction on Thursday after U.S. data.

The one-year rate ended at 5.77%, while the two-year rate closed at 5.96%. The liquid five-year rate settled at 6.27%.

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