Indian bonds mirror gains in Treasuries as oil slips

Mumbai witnessed a rise in Indian government bonds on Thursday, aligning with the gains in U.S. Treasuries. This trend was fueled by falling crude prices and reduced expectations of additional Federal Reserve rate hikes, which improved market sentiment. The benchmark 6.94% 2036 bond yield experienced a 2-basis-point decrease to 6.7582%.

Yields move inversely to prices, and Brent crude futures declined by 2% to $87.20 per barrel, after six consecutive days of increase. Factors such as weakening global demand, higher U.S. crude inventories, and improved macroeconomic outlook due to lower oil prices, which ease imported inflation and current-account pressures, contributed to the positive sentiment.

Amidst easing concerns over further policy tightening in the U.S. and India, where data indicated central banks might maintain rates steady in the near future, traders observed. U.S. retail inflation rose by 0.1% in July, while annual inflation slowed to 3.4%, reducing the probability of a September Fed rate hike to 36%, according to CME FedWatch.

Meanwhile, the 10-year U.S. Treasury yield fell by 2 basis points to 4.67%. Meanwhile, India’s retail inflation rose to 4.45% in July, but fell short of the 4.5% analysts had predicted. Overnight index swap rates eased, further supporting bond buying. Although the swap market priced in one RBI rate hike within the next six months, UBS anticipated the RBI to maintain current rates.

Investors are now eagerly awaiting India’s 320 billion rupee debt sale on Friday for additional insights into market demand.