Indian bonds set for fifth straight gain, but debt auction may cap rally

what happened

According to Reuters, Indian government bonds are expected to extend their rally to a fifth consecutive trading session on Friday. Lower oil prices and a decline in US Treasury yields are supporting sentiment.

A new supply of debt could limit the gains, however. New Delhi plans to raise 360 billion rupees ($3.81 billion) through a sale of 15-year and 50-year bonds in its weekly auction. A private-bank trader said a more substantial drop in yields, including a sustained move below 7.15%, will depend on the auction cutoffs.

The benchmark 6.94% 2036 bond ended Thursday at 7.1710%, bringing its four-day decline to almost 25 basis points. Traders are also awaiting India's October inflation data next week, which will shape expectations for the Reserve Bank of India's policy path.

why it matters

Two factors matter for the market here. Cheaper oil reduces the risk of renewed inflation and tighter monetary policy, while the size of the auction determines how much supply the market has to absorb. On Thursday, the one-year OIS rate fell 10 basis points to 6.4050%, and the five-year rate dropped to 6.5275%.

market impact

Indian government bonds: cheaper oil supports demand, while new debt sales restrain the rally

• ↔Indian government bonds mixed — lower oil supports demand, while a large auction adds supply of bonds

tags

instruments