Indian bonds set for opening gains; auction demand to act as key driver

MUMBAI: Indian government bonds could see marginal gains in early trading on Friday, tracking declines in oil and Treasury yields, but the move would be capped as traders await fresh debt supply from the weekly auction.

The benchmark 6.94% 2036 bond yield is expected to trade between 6.72% and 6.77%, a trader at a private bank said, after ending the previous session at 6.7517%.

Bond yields move inversely to prices. New Delhi will raise 320 billion rupees ($3.36 billion) through the sale of liquid five-year and longer-duration 40-year papers.

“Since there is no flare-up in hostilities between the United States and Iran, we have seen a quick recovery in bonds after the knee-jerk selloff and the positive momentum should continue today,” the trader said.

“Foreign demand for the five-year paper would be under watch, which could trigger another rally.”

Oil prices fell on Thursday and were lower in Asian trading on Friday as concerns that accelerating inflation could soften oil demand weighed on the market, more than offsetting the impact from continued strikes between the US and Iran.

The benchmark Brent crude was around $76 per barrel, having threatened to break the $80 per barrel mark earlier in the week after the US President ended the ceasefire with Iran.

India, which imports almost 90% of its crude requirement, is vulnerable to elevated crude prices, which risk driving up inflation and darkening the fiscal and monetary policy outlook.

The 10-year US Treasury yield eased to 4.54% on Friday as traders initiated fresh positions after the yield failed to rise beyond the crucial 4.60% level.

Back home, relentless buying of debt by foreign investors continues to provide support, with net purchases rising to 380 billion rupees, or $4 billion, since the start of June, amid improving prospects of inclusion in Bloomberg’s Global Aggregate Index.