India bonds rangebound as oil-led rally loses steam

MUMBAI: Indian government bonds traded in a narrow range for a second straight session on Tuesday, as a four-week rally fuelled by lower oil prices paused and investors looked to Bloomberg index inclusion flows and the monsoon outlook for fresh cues.

The yield on the benchmark 6.94% 2036 note was slightly lower at 6.8378% at 10:25 a.m. IST.

It closed at 6.8473% on Monday.

The 10-year eased nearly 20 basis points in last four weeks. Brent crude futures have fallen nearly 40% from their April high and are now just $6 above pre-war levels.

Washington has waived sanctionson Tehran for 60 days and Tehran as allowed shipping to resume through the Strait of Hormuz. Traders are now waiting for Bloomberg’s decision on whether to include Indian bonds in its flagship index, which is expected to be announced this month.

“Sentiment has been supported in part by expectations that Indian government bonds could be considered for inclusion in Bloomberg’s global bond indices,” DBS Group Research wrote in a note.

“We expect the next leg of gains in the rupee bonds and currency on a pickup in non-resident deposit and offshore borrowings, spurred by the concessional swap facilities.”

FPIs have so far bought nearly 224 billion rupees of bonds in June. A tightness in banking-system liquidity, which is at near-neutral levels, is also expected to improve with the rising inflows, the note said.

Separately, focus will also be on the El Niño phenomenon and its impact on India’s inflation and growth, traders said.