India bonds could gain at open as Treasury yields soften further

MUMBAI: Indian government bonds are likely to rise marginally in early deals on Thursday, tracking declines in Treasury yields and as oil prices stay flattish despite escalating hostilities in the Middle East.

The benchmark 6.94% 2036 bond yield is expected to move between 6.74% and 6.78%, a trader at a private bank said. It ended the previous session at 6.7738%.

Bond yields move inversely to prices. “The war has not had any major impact on oil prices, and the whole episode is now turning into a diminishing law of returns, which is positive for Indian markets,” the trader said.

The benchmark Brent crude contract stayed around $85 per barrel, despite a new wave of US strikes on Iranian military installations that fuelled fears of renewed full-scale conflict and supply disruptions in the Strait of Hormuz.

Volatility in oil prices impacts India’s inflation as the country is one of the largest importers of crude.

India’s retail inflation in June rose 4.38%, breaching the Reserve Bank of India’s target for the first time in 17 months, but some brokerages trimmed their rate hike calls, stating inflation for fiscal 2027 will average below the central bank’s estimates.

Meanwhile, the 10-year Treasury yield eased towards 4.55% after the Producer Price Index dropped 0.3% last month, below the estimate of an unchanged reading and lower than a downwardly revised 0.6% increase in May.

Back-to-back softer economic data has allayed the concerns of immediate rate hikes from the Federal Reserve, with interest rate futures now showing an 11% probability of a hike in July and 51% for September, down from 25% and 75% earlier.

Back home, traders continue to anticipate Indian debt’s inclusion in Bloomberg’s Global Aggregate Index, leading to strong inflows from foreign investors, who have channelled over $4.2 billion into bonds under the Fully Accessible Route since June 1.