India bonds gain as US yield drop draws value buyers

Indian government bonds rose on Monday, October 19, as falling US Treasury yields encouraged value buying after a flat opening. The benchmark 6.94% bond maturing in 2036 yielded 7.3551% at 10:25 a.m., against 7.3789% at the previous close, Economic Times Markets reported. Bond prices move inversely to yields.

The recovery followed nine consecutive weeks of increases in India's 10-year benchmark yield—a record run, according to the report—with a cumulative rise of 62 basis points. Indian debt markets will be closed on Tuesday for a local holiday, shortening the trading week.

US rally offers support, but domestic pressures persist

The US 10-year Treasury yield was around 5.05% after declining the previous week. Investors were weighing economic data and positioning for the Federal Reserve's next interest-rate increase to come no earlier than December. An unnamed primary-dealership trader cited in the report expected Indian debt to follow the Treasury rally, but with smaller gains because of domestic constraints.

Oil prices also eased in Asian trading. The report linked the decline to expectations of improved supply following what it described as President Donald Trump's decision to waive sanctions and tariffs on Russia. It did not specify the measures covered by that decision.

India's September consumer inflation accelerated to 5.54%, according to the report. Economists cited in it expected inflation to exceed the Reserve Bank of India's 6% upper tolerance limit in October; that remains a forecast, not a reported October outcome.

RBI outlook and swap rates

RBI Governor Sanjay Malhotra said the previous week that monetary policy could be used to protect financial stability, the report said. It also relayed expectations from people familiar with the matter and analysts who spoke to Reuters that the central bank would tighten financial conditions further to curb capital outflows and make bets against the rupee more expensive. Those expectations were not an announcement of a new RBI measure.

Overnight indexed swap rates declined alongside US yields. The one-year rate fell 7 basis points to 6.48%, and the two-year rate dropped 8 basis points to 6.54%. The five-year rate eased to 6.74%; the report did not give the size of that decline.