Indian bonds poised for positive start on lower oil prices, Treasury yields

Indian government bonds are expected to see a positive start on Friday, buoyed by a decline in oil prices and lower US Treasury yields, though fresh supply from the weekly debt auction may temper gains, according to a trader. The benchmark 6.94 per cent 2036 bond is forecast to trade between 6.75 per cent and 6.78 per cent before the auction, having settled at 6.7582 per cent on Thursday.

As yield and price move inversely, traders are keen to see whether there are sufficient buyers to push the 10-year bond yield above the 6.75 per cent mark. Oil prices softened on Thursday as investors weighed weaker global demand and a surge in US crude inventories; Brent crude fell below $87 a barrel after US Energy Information Administration data revealed a record weekly increase in US commercial crude oil stocks since January 2023, coupled with a slump in exports.

As India ranks third globally in oil imports, fluctuations in oil prices could influence the country's economic outlook. US Treasury yields also slipped, with the 10-year yield hovering around 4.65 per cent, following data indicating subdued producer prices in July, aligning with market expectations and dampening prospects of a Federal Reserve rate hike next month.

Overnight index swap rates in India might experience a minor decline in tandem with oil and Treasury movements. On Thursday, the one-year rate closed at 5.75 per cent, the two-year rate fell to 5.93 per cent, and the five-year liquid rate settled at 6.25 per cent.