Indian bonds steady as soft US data offsets oil rise

Synopsis

Indian government bonds were largely steady on Monday as softer US jobs data supported expectations of lower US rates, while rising crude prices capped gains. The benchmark 6.94% 2036 bond yield eased to 6.7594%. Investors are also watching upcoming Indian and US inflation data for fresh interest-rate cues.

MUMBAI, - Indian government bonds were little changed early on Monday, caught between softer-than-expected U.S. jobs data, which lowered expectations of a Federal Reserve rate hike, and rising oil prices that kept investors wary. U.S. Labor Department's employment report on Friday showed the unemployment rate fell to 4.1% last month from 4.2% ‌in June, as more ⁠people ⁠left the labor force, pushing the participation rate to a near 5-1/2-year low. U.S. Treasury yields eased after the data, while investors cut the odds of a September rate hike to 42% from 67% last week.

Lower Fed-hike expectations supported demand for longer-duration Indian debt, though rising oil prices in Asian trade tempered risk appetite.

Brent crude ​futures rose 0.4% to $83.90 a barrel, set to extend ⁠gains to ‌a fourth day.

The benchmark 6.94% 2036 Indian bond ​yielded 6.7594% at ​11:25 a.m. IST, versus 6.7651% at Friday's close.

The 30-year ⁠and 40-year bond yields each fell 2 basis points to ​7.3913% and 7.4834%, respectively. Bond yields move inversely to ​prices. India's longer-duration bonds have been under pressure since the U.S.-Iran war began, with higher oil prices raising concerns about global inflation and prospects of higher interest rates.

"Easing expectations of U.S. tightening improve the case for taking duration risk in India, particularly as the Reserve Bank of India seems unlikely ‌to raise rates at least until December," a private-bank trader said. The RBI held its key rate last week, but lowered ​its inflation forecasts, prompting ​analysts to push ⁠back calls for further rate hikes. Investors will 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 eased, tracking offshore receiving.

The one-year and the two-year swap rates lowered slightly to 5.7575% and 5.9425% respectively. The most liquid five-year swap rate declined 1.5 bps to 6.2475%.

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