India's 10-year bond has best day in 3 months on Treasury rally, easing oil

Indian government bonds jumped on Thursday, with the benchmark 10-year bond posting its best day in three months, as Treasuries rallied and crude prices eased, prompting short covering.

The yield on the benchmark 6.94% 2036 bond dropped 5 basis points to 7.3902%, its biggest fall since July. Bond prices rise when yields fall.

The move gathered pace after the 10-year US Treasury yield slid 4.5 basis points to 5.00% in Asian hours, easing the global borrowing-cost backdrop. Meanwhile, Brent crude fell 1.3% to $113.70 a barrel on hopes of peace talks.


Yields on India's battered government bonds may be approaching territory seen as a buying opportunity, investors said.

The Federal Reserve's less hawkish pause also helped the market. The Fed left rates unchanged on Wednesday, as expected, and chair Kevin Warsh's remarks were viewed as less hawkish than feared, leading markets to pare expectations for further US tightening.

"It was certainly less hawkish and gives breather space for the RBI also to pace out the rate hikes," said Kruti Chheta, Mumbai-based fund manager at Mirae Asset Mutual Fund.

The Reserve Bank of India raised the repo rate and adopted a tighter policy stance earlier this month, signalling more rate increases may follow.

Investors await the government's 330 billion rupee ($3.47 billion) bond auction on Friday. Strong bidding could validate the bond rally and bring yields down further, traders said.

RATES

OIS rates were mixed. The long end tracked the Treasury rally, while short maturities were muted amid tight liquidity.

The one-year OIS was flat at 6.68%. The two-year OIS fell 1.5 bps to 6.7250%, while the five-year fell 2.75 bps to 6.85%.