India bonds tread water ahead of large debt sale

MUMBAI: Indian government bonds moved sideways early on Friday, as traders braced for heavy debt supply, while range-bound oil prices and softer US Treasury yields offered some breathing room.

New Delhi is set to auction 320 billion rupee ($3.32 billion) worth of three- and 30-year bonds later in the day.

Brent has hovered near $85 a barrel this week, while the 10-year US Treasury yield stayed close to 4.55% on curbed expectations of aggressive Federal Reserve rate hikes.

With external pressures contained, the Indian benchmark 6.94% 2036 bond yield traded rangebound at 6.7519% as of 10:10 a.m. IST, compared with Thursday’s close of 6.7478%. Bond yields move inversely to prices.

The 10-year yield has slipped nearly 5 basis points over the last two sessions, even as a fragile US-Iran truce frayed into daily attacks in the Middle East.

Market has shown firm demand for Indian government bonds despite a softer backdrop this week marked by higher-than-expected CPI, renewed escalation in the US-Iran conflict, and rupee weakness, economists at DBS said in a note.

Foreign participation has also picked up, which should support the auction and keep primary-market demand healthy, they said.

Overseas investors bought about 16.5 billion rupees of bonds under the fully accessible route this week on expectations of a possible inclusion on the Bloomberg Index.

Foreign banks turned buyers on Thursday, snapping a three-session selling streak, net buying more than 50 billion rupees ($518.97 million) of bonds, CCIL data showed.