India bonds rise after flat open as sharp drop in US yields spurs value buying

The benchmark 6.94% 2036 bond yield was at 7.3551% as of 10:25 a.m., after closing at 7.3789% in the previous session. Indian debt markets will remain shut on Tuesday for a local holiday.

India's 10-year benchmark bond yield has risen for a record nine consecutive weeks, climbing 62 basis points in total.

Oil, foreign flows in focus for rupee; bond traders eye rate-hike bets

During the upcoming holiday week, analysts predict the Indian rupee will remain steady, with oil price trends and foreign capital flows playing essential roles. Impressively, the rupee rose by 2% last week, achieving its highest value since March at 94.96. The Reserve Bank of India is undertaking assorted measures aimed at strengthening the rupee while addressing inflation worries.

"Treasuries are rising with a breathtaking speed in the last few days, and Indian debt is bound to follow, even though at a very smaller magnitude due to local factors," trader at a primary dealership said.

The 10-year US yield dropped last week, and was around 5.05% levels, as investors assessed the latest economic data and bet that the Federal Reserve's next rate hike will not come until December.

Meanwhile, oil prices eased in Asian hours as markets eye better supply after President Donald Trump's decision to waive sanctions and tariffs on Russia.

India's September consumer inflation accelerated to 5.54%, and is on track to cross the 6% upper end of the central bank's tolerance band in October, economists said.

Reserve Bank of India Governor Sanjay Malhotra said last week the central bank may use monetary policy to safeguard financial stability.

The RBI is expected to tighten financial conditions further to stem capital outflows and raise the cost of shorting the rupee, people familiar with the matter and analysts told Reuters.

RATES

The 1-year OIS was down 7 bps to 6.48%; the 2-year rate eased 8 bps to 6.54%, while the 5-year rate was down to 6.74%.