India bonds tick up; high US yields cap RBI buying hope

MUMBAI: Indian government bonds edged higher on Tuesday, snapping a four-session losing streak, but gains were capped as a surge in U.S. Treasury yields offset hopes of Reserve Bank of India buying in the secondary market.

The benchmark 10-year 6.48% 2035 bond yield ended at 6.6722%. It settled at 6.6842% on Monday.

Bond yields move inversely to prices.

The 10-year yield eased to 6.65% earlier in the day, which traders attributed to suspected central-bank buying in the secondary market and some bargain purchases by traders as it held below the 6.70% level feared at the open.

The market pared most of the gains shortly after, tracking a spike in U.S. yields. The U.S. 10-year bond yield stood at 4.2906% in Asian hours, its highest intraday peak in nearly five months.

Rising U.S. Treasury yields and the federal budget for the next fiscal year are the market’s main triggers right now, said Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank, adding that bonds with maturities of up to three years look most attractive right now.

India’s FY27 budget is due on February 1. Analysts expect New Delhi’s gross borrowing to rise to a record in the financial year starting April.

The market is also closely watching the rupee’s trajectory, as further depreciation may put upward pressure on yields, traders said.

The rupee ended at 90.9750 to a dollar, down 0.1% from 90.91 at Monday’s close. The unit has lost around 1% in five sessions.

RATES

India’s overnight index swap rates saw heavy paying in the second half, as offshore investors reversed Asia bets.

The one-year OIS rose 2.5 bps to 5.59%, while the two-year swap rate jumped2.5 basis points to 5.7050%. The five-year OIS rate surged 3 bps to end at 6.1%.