India bond rally pauses ahead of state debt sale

Indian government bonds traded range-bound early Tuesday, pausing a three-session rally, as traders awaited a large state-debt auction. The benchmark 6.94% 2036 bond yield was at 6.6816% as of 10:45 a.m. IST, near a four-month low and barely changed from Monday's close. The 10-year yield fell 7 ‌basis points in ⁠the ⁠last three sessions.

Yields move inversely to prices.

States will sell bonds worth 213.50 billion rupees ($2.24 billion) later in the day.


"With oil and U.S. Treasury yields trading sideways, we are waiting for fresh directional triggers and will watch the state-debt sale for further cues," a private-bank trader said.

Brent crude futures were last at $72.50 a barrel, consolidating near pre-war levels after ⁠sliding 21% ‌in June following a U.S.-Iran interim peace deal that reopened the Strait of Hormuz.

The decline has eased fiscal pressures on India, ⁠the world's third-largest oil importer and consumer. Sustained foreign buying is expected to continue underpinning sentiment. These investors have bought more than 351 billion rupees ($3.7 billion) of bonds in the month since the central bank's latest monetary policy decision, where it held rates and maintained a neutral stance.

Foreign investors are also betting on bonds' inclusion on Bloomberg's Global Aggregate Index after New Delhi's tax break improved ‌the case for entry. Bloomberg Index Services is expected to announce its decision on the inclusion this month.

Traders said monsoon-led inflation concerns have also ⁠eased as rainfall improved across the country.

The cumulative rainfall deficit narrowed to 24% below the long-period average as of July 5 from 43.1% on June 28, Barclays said in a note.

RATES

India's overnight index swap traders received fixed rates as overall sentiment remained upbeat.

The one-year swap rate fell 1.25 bps to 5.7250%, while the two-year rate fell 1.75 bps to 5.86%. The five-year rate fell 2.75 bps to 6.1075%.

($1 = 95.3900 Indian rupees)