Indian government bond prices strengthened on Thursday amid falling crude oil prices and subdued expectations of US interest rate hikes, supported by improved risk appetite and stable domestic inflation, with traders eyeing upcoming debt auctions.
Indian government bond prices firmed on Thursday as a fall in crude oil and softer expectations for further US rate increases improved risk appetite, according to traders in Mumbai. The benchmark 6.94% bond due in 2036 was quoted at a yield of 6.7582%, down 2 basis points, after U.S. Treasuries also strengthened.
Brent crude fell 2% to $87.20 a barrel in Asian trading, easing after six straight sessions of gains. Traders said the pullback reflected concern about weaker global demand and rising U.S. inventories, even as stalled U.S.-Iran peace talks kept geopolitical supply risks in view. For India, which relies heavily on imported crude, lower oil prices typically ease inflation pressure and improve the external account.
That backdrop was reinforced by recent inflation readings in the U.S. and India. U.S. consumer prices rose 0.1% in July after falling in June, while the annual rate slowed to 3.4% from 3.5%, reducing market expectations for a September Federal Reserve hike, according to CME FedWatch. In India, retail inflation rose to 4.45% in July from 4.38% in June, though that was slightly below analysts’ forecasts. UBS said in a note that it expects the Reserve Bank of India to leave rates unchanged even though swaps are still pricing in one increase over the next six months.
The fall in overnight index swap rates also lent support to bond buying, traders said. Attention now turns to New Delhi’s 320 billion rupee debt auction on Friday, which will give markets a fresh read on demand. Indian bond traders have been watching oil closely because the IMF says the country imports nearly 90% of its oil consumption, making it highly sensitive to swings in global energy prices.
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