MUMBAI: Indian government bonds gained on Monday as a fall in global oil prices raised expectation that inflation would be kept in check, while hopes persisted that the government would increase foreign investment limits.
Sentiment was also underpinned after data on Friday showed US employers added the fewest jobs in eight months in August, reviving bets that the Federal Reserve might leave interest rates near zero for longer than anticipated.
The gains shook up a lethargic bond market that has seen the benchmark 10-year bond end steady for three consecutive sessions.
Absence of a bond auction during the week also supported buying.
"The momentum can sustain on lower crude prices and hope that debt limits may be increased," said Harish Agarwal, a fixed income trader with First Rand Bank.
The yield on the 14-year benchmark 2028 bond, which was the most-traded on Monday, ended down 3 basis points at 8.65 percent.
The 2024 10-year bond yield, which became the benchmark last month, closed down 2 bps on the day at 8.50 percent.
Volumes increased on the electronic trading platform to 339.95 billion rupees ($5.64 billion) compared with 225.33 billion rupees on Friday.
Brent crude oil fell below $100 a barrel for the first time in 14 months on Monday as Chinese and US data pointed to slower-than-expected growth in the world's top oil consumers.
India imports two-thirds of its energy need, making oil prices a key factor for inflation. The government is due to release consumer prices data for August on Friday.
Traders also cited hopes that the government would raise the investment limits for foreign institutional investors, given that they have almost exhausted their $25 billion quota.
In the overnight indexed swap market, the benchmark five-year swap rate ended down 4 bps at 7.98 percent, while the one-year rate fell 2 bps to 8.44 percent.
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