Fresh debt supply to further drag Indian bonds lower
The yield on the 6.94% 2036 bond is expected to trade between 6.85% and 6.90%, after closing at 6.8709% on Thursday, according to a private bank trader
Indian government bonds are set to be sold in early deals on Friday amid a range of factors weighing on investor sentiment ahead of fresh debt supply through the weekly auction. The benchmark 6.94 per cent 2036 bond is anticipated to trade within a range of 6.85 per cent to 6.90 per cent, following its closing level of 6.8709 per cent on Thursday, its highest since over two months.
In a subsequent auction, the Indian government aims to raise ₹28,000 crore, with more than half of the funds expected to be via 15-year paper. Factors pointing towards a negative trend include elevated oil prices, the US-Iran war stalemate disrupting West Asia supply, and the threat of US President Donald Trump's economic retaliation against nations supporting Iran.
India's vulnerability to higher crude costs could lead to inflationary pressures and strain both the current account and government finances. The Reserve Bank of India's August monetary policy minutes indicated a willingness to raise rates if inflation risks materialise, with concerns over rising food, fuel, and input costs feeding into broader price pressures.
The RBI had unanimously voted to keep the policy repo rate and stance unchanged, but July's retail inflation accelerated to 4.45 per cent, surpassing the RBI's 4 per cent medium-term target. The overnight indexed swap rates may continue to experience further uptick, tracking bond yields. The one-year swap rate increased by 12.75 basis points to 5.9350 per cent, while the two-year rate rose by 11.5 basis points to 6.1650 per cent, and the liquid five-year rate ended 6.75 basis points higher at 6.4750 per cent.
Written by urgent.news from Hindu BusinessLine's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
