Indian govt bonds hang tight before supply as oil stalls

Indian government bonds stabilized on Friday as oil prices settled, providing some respite following hawkish central bank minutes and a sudden rise in crude prices, which had been driving the market toward its worst week since early April. Later in the day, the government planned to issue ₹28,000 crore ($2.93 billion) in debt, with a 15-year bond accounting for more than half of the supply.

The benchmark 6.94 percent 2036 bond was quoted at 6.8723 percent at 10:45 am IST, near Thursday's close and a two-month high. The yield had climbed about 12 basis points this week, on track for its biggest weekly rise since April 3.

Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank, noted that market sentiment was leaning towards a weakening bias due to hawkish RBI policy minutes, despite the auction likely to attract sufficient demand. Brent crude futures remained in a holding pattern at $93.5 a barrel in Asian trade. The RBI's August meeting minutes, released on Wednesday, had taken on a more hawkish tone than its policy statement, leading to renewed expectations of an interest rate hike this year as domestic inflation pressures mounted.

Additionally, retail inflation in July surged to 4.45 percent, surpassing the RBI's 4 percent medium-term target.

Traders anticipated that higher oil prices and global yields would drive the market's next move, with the US 10-year Treasury yield hovering around 4.70 percent, exerting further downward pressure. India's overnight indexed swap rates awaited fresh cues after a steep increase in the previous session. The one-year swap rate remained flat at 5.9250 percent, while the two-year rate rose by 1 basis point to 6.17 percent. The liquid five-year rate held steady at 6.4725 percent.