Indian government bonds are
likely to be steady at the start of the week, amid a lack of
significant catalysts, with persistent foreign inflows
underpinning sentiment.
The benchmark 6.94 per cent 2036 bond yield is
expected to trade between 6.70 per cent and 6.74 per cent, a private bank trader
said, after ending at 6.7108 per cent on Friday. Bond yields move
inversely to prices.
The 10-year bond yield dropped 6 basis points last week,
posting its sixth consecutive weekly decline. It has fallen by
an aggregate of 34 bps over the past six weeks.
“We do not have any major data releases in India or the
United States during the week, barring the minutes of the latest
Federal Reserve meeting, and hence yields may remain in a narrow
range through this period,” the trader said.
Last month, the Fed left interest rates unchanged but
revised the median forecast to indicate one rate hike before the
end of 2026. The minutes would be released on Wednesday, with
traders watching out for more clarity on the interest rate path.
The probability of a rate hike in September stood at 53 per cent,
while the odds rise to 77 per cent for December.
Back home, relentless foreign purchases are expected to
continue supporting sentiment, with overseas investors buying
more than 346 billion rupees ($3.63 billion) in the last five
weeks since June 1, including record monthly inflows last month.
Inflows under the Fully Accessible Route have remained
strong after New Delhi and the Reserve Bank of India announced
measures to attract foreign capital and support the rupee,
boosting the prospects of domestic bonds being included in
Bloomberg’s Global Aggregate Index.
Oil prices also eased, after the Organization of the
Petroleum Exporting Countries and their allies including Russia
known as OPEC+ agreed to further increase output targets by
188,000 barrels per day from August.
Rates
India’s overnight index swap rates are also expected to
remain range-bound in line with bond yields and global factors.
On Friday, the one-year swap rate ended at
5.78 per cent on Friday, while the two-year swap rate
closed at 5.91 per cent. The five-year rate settled at
6.18 per cent.