India 10Y Yield Holds as Fed Bets Ease

The yield on India’s 10-year G-Sec hovered around 6.76%, steadying after rising in the previous session as softer US jobs data and reduced expectations of a September Federal Reserve rate hike supported demand for longer-duration Indian debt, while rising oil prices tempered risk appetite. US employers unexpectedly shed 23,000 jobs in July, versus expectations for an 80,000 increase, prompting investors to cut the odds of a September Fed rate hike to 42% from 55% before the data. US Treasury yields also eased following the release. Meanwhile, Brent crude rose 0.4% to $83.90 a barrel, extending gains for a fourth day and limiting appetite for Indian bonds amid concerns over global inflation. The RBI kept its policy rate unchanged last week, while lowering its core inflation forecast by 40 bps to 4.3% and its headline inflation projection by 10 bps to 5%. Traders are also awaiting July CPI data on Wednesday, with inflation forecast to rise to 4.50% from 4.38% in June.

The yield on India’s 10-year G-Sec edged up to around 6.78% on Friday, retracing part of this week's decline as a sharp rebound in oil prices dampened demand for government bonds ahead of the New Delhi's INR 320 billion debt auction. Investors closely monitored the sale of five-year and 40-year securities for cues on demand, particularly for longer-dated debt. Meanwhile, Brent crude climbed to around $83.7 per barrel, up nearly 6% amid renewed concerns over shipping through the Strait of Hormuz, raising worries over India's import bill, inflation, and the rupee. Higher oil prices also pushed the US 10-year Treasury yield up to 4.68%, reducing the appeal of emerging-market debt. Still, expectations that the Reserve Bank of India will maintain ample banking system liquidity following its dovish policy decision and lower inflation forecast continued to underpin sentiment, while reports of RBI intervention in the foreign exchange market helped limit pressure on the rupee.

The yield on India’s 10-year G-Sec fell to around 6.73%, extending losses for a third consecutive session to a near three-week low as the Reserve Bank of India's dovish policy stance continued to boost demand for government debt. The central bank kept its repo rate unchanged while lowering its inflation forecasts for both headline and core inflation, reinforcing expectations that policy tightening will be delayed. Investors also took comfort from softer crude prices, with Brent hovering near $79 a barrel, well below the RBI's previous oil price assumption, easing concerns over inflation. Meanwhile, overnight indexed swap rates declined as markets pared expectations for future rate hikes to around 50 basis points over the next year, down sharply from 125 basis points during the peak of the Iran crisis. Attention now turns to Friday's INR 320 billion government bond auction, which will test whether strong demand can sustain the recent rally.