India bonds tread water ahead of US, local inflation prints
MUMBAI: 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,…
Indian government bonds remained relatively stable on Monday, following a previous week's uptick. Soaring oil prices, which counteracted the positive impact of softer U.S. economic data, played a role in this steadiness. Market participants were preparing for upcoming July inflation data from both India and the United States to gauge future market movements.
On Friday, the U.S. reported a surprising drop in July employment, with 23,000 jobs lost unexpectedly. This news led traders to lower the probability of a Federal Reserve interest-rate hike in September from 67% to 42%. Meanwhile, Brent crude futures increased by 1.4% in Asian trading, reaching $84.75 per barrel, a rise that was expected to continue for a fourth consecutive day.
Despite the lower odds of a Federal Reserve rate increase, this situation may benefit Indian debt, but it also raises concerns regarding domestic inflation, the trade balance, and fiscal issues, as India is a significant oil importer. Notably, India's long-term bonds saw a rise, potentially due to buying activity from insurers. According to a French lender, the Indian rupee's minimum value for purchasing power is around 96 per dollar.
The yields on the 7.24% 2055 bond fell by 1.5 basis points to 7.3955%, while the 40-year yield decreased by 2.5 basis points to 7.4847%, both nearing three-week lows. Approximately 90% of Tata Mutual Fund's gilt fund is invested in securities that mature within 14/15, 30, and 40 years. The asset manager noted that the yield curve is relatively steep and primarily attributed to geopolitical events.
They believe that the Reserve Bank of India (RBI) will likely maintain its supportive stance and anticipates that yields could decline further once the Middle East conflict concludes. Investors are now monitoring inflation data from India and the United States, set to be released this week, to gain additional cues for potential changes in interest rates.
A Reuters survey of 40 economists predicts that India's July retail inflation rate will rise to 4.50% from 4.38% in June. Overnight index swaps in India ended with mixed results. The one-year rate increased by 1.5 basis points to 5.7775%, a slight rise after the Reserve Bank of India's (RBI) liquidity-absorbing operations. Two-year swap rates remained unchanged at 5.9525%, while the five-year rate fell by nearly 1 basis point to 6.2550%.
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