Indian government bonds are
likely to trade in a narrow range on Tuesday, as markets await
details of the preliminary peace deal between the U.S. and Iran
and assess fresh debt supply from Indian states.
The yield on the benchmark 6.94% 2036 note is
likely to move between 6.85% and 6.89%, according to a private
bank trader. It closed at 6.8704% on Monday, its lowest closing
level since March 24.
Yields move inversely to bond prices.
“It was just a matter of when the peace deal coming through,
and it will definitely add to the positive momentum that has
built up since the central bank’s policy decision,” the trader
said.
The benchmark Brent crude contract inched higher in Asian
hours on concerns about the lack of details in the peace
agreement and the resumption of supply through the Strait of
Hormuz.
On Monday, crude prices dropped nearly 5% to their lowest
close since March 4, after U.S. President Donald Trump said a
memorandum of understanding was signed to end the war and reopen
the strait, a key passage for one-fifth of the world’s oil and
liquefied natural gas supply.
India imports about 90% of its crude oil requirementsand a
sustained fall in prices could ease pressure on inflation, the
rupee and the country’s trade deficit.
Lower oil prices will also support the Reserve Bank of
India’s effortsto attract foreign inflows, helping ease pressure
on India’s import bill and aid the rupee.
Foreign investors have injected over $1.75 billion into
domestic bonds over the last seven sessions since the RBI
announced measures to attract dollar inflowsearlier this month.
Meanwhile, Indian states will aim to raise 216 billion
rupees ($2.28 billion) through bond sales later in the day.
RATES
India’s overnight index swap rates may also see limited
moves after recent declines.
On Monday, the one-year swap rate dropped
4.25 bps to 5.9250% and the two-year rate fell
4.5 bps to 6.08%. The five-year rate settled
at 6.3150%.