India's benchmark bond breaks 4-day falling streak as value investors return

Germany’s 10-year government bond yields, the euro area benchmark, were down 2 basis points (bps) to 3.47%.

A policy rate hike and liquidity withdrawal by the central bank had pushed the benchmark bond yield up by 20 basis points over four sessions. The 6.94% 2036 bond ended at 7.3655% against 7.3857% in the previous session.

The rupee outperformed its regional peers and ended 0.5% up against the dollar at 95.28, boosted by new central bank measures to alleviate pressure on the Asian currency and likely spot market intervention that magnified their impact.

Indian government bonds have rebounded following a significant rise in yields, drawing investors back into the market. The benchmark bond yield has risen due to a central bank policy rate hike and liquidity measures. The rupee has appreciated against the dollar after the central bank implemented new measures to support the currency. Meanwhile, traders are anticipating US inflation data, which could influence Federal Reserve decisions.

"The base case is that the 10-year bond yield has provided support in the 7.40% ranges, however, any further OMO (open market operation) sale could push the 10-year benchmark yield towards the 7.60-7.65% range," said Harsimran Sahni, associate director and head of treasury at Anand Rathi Global Finance.

The RBI raised its key policy rate by 25 basis points last week and changed its policy stance, hinting at more hikes in coming months. The central bank has also announced currency market measures that cloud the outlook for banking system liquidity and impact banks' treasury operations.

Bets of a December rate increase have hardened after consumer inflation accelerated to 5.54% in September, while the benchmark Brent crude contract held above the $105 per barrel mark.

Bond gains were curbed by hefty supply.

Indian states raised over 300 billion rupees through bonds while the Reserve Bank of India sold notes worth 250 billion rupees through an open market operation. New Delhi is sue to sell benchmark note worth 340 billion rupees on Friday.

Traders awaited US inflation data due on Wednesday for cues on the Federal Reserve's moves.

Overnight indexed swap rates eased, tracking bond yields and a pullback in US Treasury yields.

The one-year OIS rate ended at 6.3350%, while the two-year rate closed at 6.5150%, and the most liquid five-year rate settled lower at 6.74%.