Govt bonds rise as oil, US yields fall; state supply looms
India’s overnight index swaps declined further, tracking U.S. yields and oil prices. The one-year swap rate was down 1.75 bps at 5.87%, while the two-year rate fell 1.25 bps to 6.06%.
Government bonds in India rose on Tuesday as oil prices and U.S. Treasury yields fell for the third consecutive day, boosting investor sentiment before a significant state debt auction. The benchmark 6.94% 2036 bond yield traded at 6.7613% at 10:30 a.m. IST, down from 6.7739% on Monday after its largest two-month decline. Bond yields move inversely to prices, meaning they fall when asset prices rise.
Traders will closely monitor state-run bank sales of ₹18100 crore ($1.89 billion) worth of debt later in the day to gauge demand and potential further yield reductions. A drop below 6.75% on the 10-year yield is viewed as crucial, as state bank sales could curb additional declines, according to a private-bank trader. State banks sold ₹33.700 crore of bonds on Monday to capitalize on profits after purchasing extensively in recent weeks, data from the Clear Capital Infrastructure Ltd. (CCIL) showed.
Meanwhile, foreign lenders and offshore investors maintained strong demand. Offshore investors purchased 4.83 billion rupees of bonds through the fully accessible route on Monday, following their biggest one-day sell-off in four months on Friday. Brent crude oil prices fell by 2% to $86.52 a barrel in Asian trade on Tuesday. President Donald Trump reported on Monday that discussions with Iran were progressing positively, potentially leading to a deal to end their conflict.
India's sensitivity to oil price fluctuations is notable, as the country imports approximately 90% of its crude requirements. U.S. Treasury yields also decreased ahead of the Federal Reserve's policy decision scheduled for later on Wednesday, where a rate hold is anticipated. The market expects a 25-basis-point rate hike in September, which would pose a significant risk to India, as higher U.S. rates could diminish the risk premium offered by Indian bonds compared to U.S. debt.
Indian overnight index swaps, which mirror U.S. yields and oil prices, further declined, with the one-year swap rate dropping 1.75 basis points to 5.87%, the two-year rate falling 1.25 basis points to 6.06%, and the five-year rate reducing 2.25 basis points to 6.3350%.
Written by urgent.news from Hindu BusinessLine's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
