India bond bulls eye breach of key level on US-Iran hopes, index inclusion bets

MUMBAI: Indian government bond bulls are likely to attempt another break of a key level in the benchmark bond yield on Tuesday, as positive momentum persists with investors eyeing potential US-Iran talks and the inclusion of Indian debt in a global index.

The benchmark 6.94% 2036 bond yield is expected to trade between 6.72% and 6.78%, a private bank trader said.

It closed at 6.7515% on Monday, its lowest level since March 20.

Bond yields move inversely to prices.

“There is heavy demand for longer duration notes, and we could see the benchmark bond yield dip below 6.75%, but whether it will sustain around those levels would be interesting to see,” the trader said.

The benchmark bond yield has dropped by an aggregate of 30 basis points over the last five weeks, tracking a sharp correction in oil prices and strong debt purchases by foreign investors.

The benchmark Brent crude contract eased to around $72.50 per barrel in Asian hours, with investors eyeing the outcome of potential talks in Doha after weekend missile fire from the US and Iran tested an interim ceasefire aimed at ending the four-month-old war.

India imports nearly 90% of its crude requirements, and benign oil prices aid the nation’s inflation outlook.

Meanwhile, foreign investors remained dominant buyers of government bonds, with net buying of almost $3 billion so far this month, according to clearing house data.

Recent tax benefits, coupled with measures expanding access to more securities for foreign investors, have boosted the prospects of Indian bonds being included in Bloomberg’s Global Aggregate Index, according to some investors.