India benchmark yield falls most in 3 months on value buying

Indian government bonds rebounded in volatile trade on Tuesday, with the benchmark 10-year yield logging its biggest single-day decline in three months after a failure to breach a key upside level triggered value buying.

Brent crude whipsawed between $114.40 and $117 a barrel in Asian trade, driving sharp intraday swings in the debt market of the world's third-largest oil importer.

The yield on the benchmark 6.94% 2036 bond briefly tested 7.50% before falling nearly 5 basis points to 7.4360%, easing for the first time in nearly a week and most since July 27. Bond yields move inversely to prices.


After the sharp selloff in recent days, current levels look attractive, said Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank.

"Investors may have started buying bonds in a staggered manner."

The Indian rupee's stabilisation also offered the market some respite. The currency ended at 95.1150 per dollar, marginally stronger than Monday's close.

Still, traders remained guarded as elevated oil prices continue to cloud India's inflation and fiscal outlook.

Focus now shifts to global central-bank decisions, led by the Federal Reserve's policy verdict on Wednesday, which could recalibrate expectations for India's rate path.

The Bank of Japan, Fed and European Central Bank are all expected to raise rates by year-end, as resilient AI-led demand and the Iran war's energy shock stoke global inflation.

The RBI raised its key rate and shifted its stance earlier this month, signalling more tightening ahead.

RATES

India's overnight indexed swap rates eased alongside bond yields.

The one-year OIS rate fell 1.25 bps to 6.64%, though it continued to price in around 100-125 bps of rate hikes over the next year.

The two-year OIS declined 2 bps to 6.6750%, while the five-year shed 2 bps to 6.8150%.