India bonds tread water ahead of US, local inflation prints

Synopsis

On Monday, Indian government bonds remained stable following last week's increases. The rise in oil prices countered some support from softer economic data from the United States. Traders are eagerly awaiting inflation reports from both India and the U.S., which will significantly influence bond market trends this week. Notably, ultra-long bonds saw a rise, likely driven by value purchases from insurers.

Indian government bonds traded flat ​on Monday after last ​week's rally as higher oil prices offset support from softer ​U.S. data, while traders looked ahead to July inflation data for India and the United States for further direction.

The benchmark 6.94% 2036 bond ended little changed at 6.7643% on ‌Monday.

Data on ⁠Friday showed ⁠that U.S. employers unexpectedly shed 23,000 jobs in July, prompting traders to cut odds ​of a Federal Reserve interest-rate hike in September to 42% from 67% a week earlier.

Meanwhile Brent ​crude futures rose 1.4% in Asian trade to $84.75 per barrel, set to extend gains to a fourth day.

Lower Fed-hike odds support Indian ​debt, but as a major oil importer, higher ⁠crude prices ‌can ignite domestic inflation, trade balance and fiscal concerns.

India's ​ultra-long bonds, however, ​advanced, likely due to insurer-led value buying, traders said.

The ⁠yield on the 7.24% 2055 bond fell 1.5 basis ​points to 7.3955%, while the 40-year yield declined 2.5 ​bps to 7.4847%, both near three-week lows.

Approximately 90% of Tata Mutual Fund's gilt fund is deployed in securities maturing in 14/15 years, 30 years and 40 years, the asset manager said in a note.

"The yield curve is quiet steep and largely resultant of geopolitical developments. We believe RBI ‌will continue to remain supportive and yields could drive south sharply once Middle East war comes to an end."

Investors will ​now watch ​inflation readings from India ⁠and the United States due this week for fresh rate cues. A Reuters poll of 40 economists forecast India's July retail inflation would rise to 4.50% ​from 4.38% in June.

RATES

India's overnight index swaps ended mixed.

The one-year rose 1.5 bps to 5.7775%, inching higher after RBI's liquidity draining operations.

The two-year swap rates ended little changed at 5.9525% and the five-year rate declined about 1 basis point to 6.2550%.

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