Indian government bonds are
likely to extend gains in early deals on Tuesday, tracking a
pullback in oil prices, with sentiment also supported by a slate
of central bank measures to attract dollar inflows.
The yield on the benchmark 6.48% 2035 note
may trade in the 6.92% to 6.98% range, a private bank trader
said. It closed at 6.9532% on Monday. Yields move inversely to
bond prices.
“There would be further attempts to drag yields lower, and
the next technical level of 6.92% is expected to come into
play,” the trader said.
Oil prices came off their highs on Monday and declined
further in Asian hours on Tuesday, hovering around $94 per
barrel.
Still, oil prices remain under the spotlight after Iran and
Israel left the door open to a possible resumption of attacks on
each other, though they had called a halt to hostilities
following an appeal from U.S. President Donald Trump.
India imports about 90% of its crude oil, leaving the
economy highly vulnerable to swings in oil prices.
Meanwhile, the Reserve Bank of India announced a detailed
mechanism for state-run companies to raise external commercial
borrowing and for lenders to raise non-resident deposits.
These form a part of a larger set of measures to boost
foreign participation in government securities and attract large
dollar inflows that the RBI had announced on Friday, when it
also kept its policy rate and stance unchanged.
Analysts have pegged inflows of around $50 billion from
these measures, which could nearly negate the pressure on the
balance of payment for this financial year.
India’s Punjab National Bank expects the banking sector to
raise $35 billion to $40 billion via foreign currency deposits
under this scheme, a top executive told Reuters on Monday.
RATES
India’s overnight index swap rates are expected to ease,
tracking moves in yields and oil.
The one-year swap ended at 6.0475% on
Monday, while the two-year rate closed at
6.24%. The five-year rate settled at 6.5375%.