MUMBAI: Indian government bonds fell on Tuesday on expectations that a potential trade deal with the United States could lower the likelihood of another rate cut by the Reserve Bank of India.
The yield on the benchmark 10-year note closed at 6.5078%. It ended at 6.4883% on Monday, its lowest level since October 15.
U.S. President Donald Trump said on Monday that the United States was getting close to reaching a deal with India that would expand economic and security ties between the two countries.
There’s been a shift in investor sentiment as a deal might lead to reduced tariffs on Indian goods, which could soften the blow to domestic growth and possibly reduce the need for future interest rate cuts.
The Indian economy will likely grow at 6.7%, slightly faster than expected, in fiscal 2026, a Reuters poll showed.
October’s inflation data, due Wednesday, is also on investors’ radar, as a moderate inflation environment could keep the door open for potential interest rate cuts.
“We expect October CPI inflation to ease to a fresh low,” said Radhika Rao, executive director and senior economist at DBS Bank, adding that it will most likely mark the trough in the current cycle as inflation is expected to climb gradually in the coming months.
The pace of price rises is expected to have slowed by more than a full percentage point to 0.48% from 1.54% in September, per a Reuters poll, its lowest in the current 2012-base series.
Focus will also be on the RBI to see whether it continues its secondary market purchases, which bolstered demand last week.
RATES
India’s overnight index swap rates were little changed on Tuesday as traders eyed the U.S.-India trade deal.
The one-year OIS rate settled at 5.4725%, while the two-year rate closed at 5.46%. The five-year swap rate shut at 5.73%.
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