India bonds fall, tracking US Treasuries as demand lags

MUMBAI: Indian government bonds fell on Monday as weaker US Treasuries set the tone for a market still feeling the sting of missing out on inclusion in

Bloomberg‘s Global Aggregate bond index , while investors largely ignored a reduction in the week’s state bond issuance.

The yield on the 10-year benchmark bond settled at 6.6842%. It ended at 6.6767% on Friday.

Bond yields rise when prices fall.

The 10-year US Treasury yield climbed 7 basis points on Friday after after stronger-than-expected jobs data dented rate cut expectations, adding to market woes in a week that saw Federal Reserve Chair Jerome Powell reveal the Trump administration had threatened him with a criminal indictment.

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Higher US yields weighed on Indian bonds, with investors shrugging off a cut in states’ weekly borrowing to 130 billion rupees ($1.43 billion) on Tuesday, well below the 386 billion rupees originally scheduled.

Focus is turning to India’s federal budget for fiscal year 2027, due on February 1.

“We remain cautious on bonds, given supply pressures and a lack of demand. In terms of the budget announcement, we believe a higher-than-expected borrowing number would likely have a larger impact,” analysts at Nomura said in a note.

Nomura expects New Delhi’s gross borrowing to rise to a record 17.50 trillion rupees in the financial year starting April.

Market participants also expect the central bank to continue its open market purchases, as demand for debt has remained muted since Bloomberg Index Services deferred India’s inclusion in its flagship bond index. The central bank has bought 2.54 trillion rupees of bonds since December.

Rates

India’s overnight index swap (OIS) rates remained under paying pressure amid rising US yields.

The one-year OIS rate rose 3.5 bps to 5.57%, while the two-year swap rate ended 4.25 bps higher at 5.68%. The five-year OIS rate settled at 6.07%, 4.25 bps higher than the previous close.