MUMBAI: Indian government bonds fell for a second straight session on Monday, as wary traders who bought heavily at Friday’s auction trimmed their positions ahead of the release of India and U.S. inflation data.
The yield on the benchmark 10-year bond settled at 6.4398%, up from Friday’s close of 6.4121%.
Bond yields move inversely to prices.
India’s inflation data, due at 4:00 p.m. IST on Tuesday, is seen as pivotal for bonds, with traders warning that even a slight uptick above estimates could trigger a selloff.
A Reuters poll expects inflation to have risen at its slowest pace in eight years, at 1.76% in July.
Some participants have priced in a 1.5% reading; any upside surprise may lead to further selling, traders said.
“As base effects recede in the coming months, headline inflation is expected to return to above 4% by early 2026,” said Radhika Rao, executive director and senior economist at DBS Bank.
India bond yields a tad up this week amid RBI-led selloff
A non-committal policy guidance also raised the bar for further rate reductions, Rao said.
The market is currently split on rate cut bets, with some analysts ruling out further cuts, while others expect growth and inflation to fall below expectations, potentially paving the way for at least one more reduction.
Meanwhile, the U.S. inflation data, due after market hours on Tuesday, could impact the Federal Reserve’s rate-cut outlook and influence the domestic bond market.
Separately, Indian states will raise 84.5 billion rupees via bonds on Tuesday, below market expectations. While the lower supply may support sentiment, traders said the inflation print will drive any significant moves.
Rates
India’s overnight index swap rates were largely unchanged, with traders cautious ahead of inflation data releases in both India and the U.S.
The one-year OIS rate ended at 5.50% and the two-year OIS rate at 5.46%. The liquid five-year OIS rate settled at 5.68%.
American Dollar Exchange Rate