Indian bonds breathe easy as Treasury yields decline
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Early Thursday, bonds issued by the Indian government saw slight upswings, influenced by a rally in US Treasuries. Despite this, concerns over liquidity, climbing interest rates, and mounting supply challenges have capped these hikes. Traders are curbing risk levels prior to a major debt auction, while rising domestic inflation fuels anticipations of a tougher monetary approach from the Reserve Bank of India, as evidenced by the expanding India-U.S. yield spread.
Indian government bonds edged higher early on Thursday, tracking a rally in US Treasuries, but gains were capped by concerns over tighter liquidity, higher interest rates and mounting supply pressures.The benchmark 6.94% 2036 bond yield was down 2.5 basis points at 7.3714% at 11:40 a.m., after falling as much as 4 basis points at the open.
Bond yields move inversely to prices.
Bonds Corner Powered By Indian bonds breathe easy as Treasury yields decline
Early Thursday, bonds issued by the Indian government saw slight upswings, influenced by a rally in US Treasuries. Despite this, concerns over liquidity, climbing interest rates, and mounting supply challenges have capped these hikes. Traders are curbing risk levels prior to a major debt auction, while rising domestic inflation fuels anticipations of a tougher monetary approach from the Reserve Bank of India, as evidenced by the expanding India-U.S. yield spread.
Treasury rally could lift India bonds at open, but caution prevailsIndia bonds sink deeper on RBI commentary, inflation concernsIndian bonds slip on higher oil, hawkish RBI governor commentsIndia's benchmark bond breaks 4-day falling streak as value investors return Browse all Bonds News withThe benchmark 10-year US Treasury yield, a barometer for global borrowing costs, dropped more than 8 basis points to 5.10% in Asian trade, after comments from Federal Reserve officials signalled little urgency to raise rates further.
Traders still continued trimming risk in the Indian debt market ahead of a large debt auction and the Reserve Bank of India's tighter cash-reserve-ratio maintenance requirements that take effect on Friday.
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"The near-term direction of IGB yields remains skewed higher as the RBI continues to tackle inflation risks, excess liquidity and currency stability concerns," said Sherilyn Chew, multi-asset strategist at DBS Bank. "The policy and supply backdrop suggests yields could remain under upward pressure in the near term."
The latest selloff has widened India-U.S. yield spreads across the curve, defying the compression seen in other Asian markets. The India-U.S. 10-year spread expanded to 228 basis points on Thursday, its widest since July 1.
Rate-hike bets have also intensified as domestic inflation quickened and Brent crude held above $100 a barrel.
India's September consumer inflation accelerated to 5.54%, and a majority of economists expect it to breach the RBI's 6% tolerance ceiling in October.
RBI Governor Sanjay Malhotra signalled Tuesday that monetary policy and financial stability cannot be fully disentangled, reinforcing expectations of further tightening.
Rates
India's overnight indexed swap (OIS) rates traded mixed early Thursday.The one-year OIS rate rose 1.5 bps to 6.4450%, the two-year rate dropped 1.5 bps to 6.58%, and five-year rate eased 3.25 bps to 6.7675%.
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Figures reflect the source report and its stated period. This article is for information and is not investment advice.
