India 10-year bond snaps four-day losing run as US yields ease

Indian government bonds advanced on Tuesday, with the benchmark 10-year note ending a four-session slide on softer US Treasury yields and crude oil prices.

The benchmark 6.94% 2036 bond settled at 7.1628%, down 2 basis points from Monday's close - which was its highest since April 2024.

US Treasury yields retreated from multi-year peaks, with the 10-year yield last at 5.21% after briefly breaching 5.26% in Asian trade.

Bonds Corner Powered By India 10-year bond snaps four-day losing run as US yields ease

On Tuesday, Indian government bonds rebounded, marking the end of a four-day downturn spurred by softer US Treasury yields and declining crude oil prices. Despite this rally, apprehensions linger over persistently high global yields and the risk of inflation. The Reserve Bank of India may soon increase rates, complicating the bond landscape further. Additionally, significant factors like banking system liquidity and debt supply continue to challenge the market.

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Brent crude eased to around $104 a barrel as markets weighed the prospect of a US-Iran truce following separate talks with mediators on Monday aimed at ending their seven-month war.

Investors still see the relief as fragile. Elevated global yields and oil-driven inflation risks have reinforced expectations that the Reserve Bank of India will raise rates at next week's monetary policy meeting, clouding the outlook for the bond market.

"Our discussions with real money managers suggest India bonds may not be attractive here, owing to the narrowing rate differential with the US and the perception that the RBI may be reluctant to hike as much as the market expects," analysts at Nomura said in a note.

Traders said bargain hunters may continue to pick up longer-duration debt at current levels, but persistent domestic and global pressures are likely to cap any rally.

Debt supply and banking system liquidity also remain key constraints. India's October-March government borrowing plan skews issuance towards 15-year and ultra-long maturities, where demand is thinner.

The RBI has been absorbing excess liquidity through dollar-rupee sell-buy swaps, open market bond sales and variable-rate reverse repos and further open-market sales could deepen supply pressure, traders said.

RATES

Overnight indexed swaps fell sharply alongside US yields and crude.

The one-year rate dropped 5.25 bps to 6.19%, the two-year slid 8.5 bps to 6.39%, and the five-year rate fell 7.25 bps to 6.65%.
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