India bonds rise as oil, US yields fall; state supply looms

MUMBAI: Indian government bonds edged higher on Tuesday as oil prices and US Treasury yields fell for a third day, lifting investor appetite ahead of a key state debt auction.

The benchmark 6.94% 2036 bond yield traded at 6.7613% at 10:30 a.m. IST, after settling at 6.7739% on Monday following its biggest drop in two months. Bond yields move inversely to prices.

Traders will watch cutoffs at states’ 181 billion rupees ($1.89 billion) debt sale later in the day for demand signals and room for yields to fall further.

“A break below 6.75% on the 10-year yield is key, as state-run bank selling may limit further declines,” a private-bank trader said.

State-run banks sold 33.7 billion rupees of bonds on Monday to book profits after buying heavily in recent weeks, CCIL data showed, while demand from foreign lenders and offshore investors remained strong.

Offshore investors bought 4.83 billion rupees of bonds under the fully accessible route on Monday, following their biggest one-day selloff in four months on Friday.

On Tuesday, Brent crude was down 2% at $86.52 a barrel in Asian trade.

President Donald Trump said on Monday the US was having “good talks” with Iran and there was a chance of a deal to end their conflict.

Indian assets are most sensitive to oil price swings as the nation imports about 90% of its crude needs.

US Treasury yields also declined ahead of the Federal Reserve’s policy decision due late Wednesday, where it is expected to hold rates, while money markets are pricing in a high probability of a 25-basis-point rate hike in September.

Higher US rates are a key risk for India as they can narrow the risk premium Indian bonds offer over safer US debt.