Indian government bonds declined for a second consecutive session amid rising oil prices and the RBI’s early termination of a swap-linked deposit scheme, influencing market sentiment and yields.
Indian government bonds fell for a second straight session on Tuesday, giving back much of the ground they had gained after the Reserve Bank of India’s policy meeting earlier this month, as higher oil prices and an early end to a swap-linked deposit scheme weighed on sentiment. The benchmark 6.94% note due 2036 finished at 6.8269%, compared with 6.8071% on Monday, according to market data, in its sharpest daily rise in more than a month.
The 10-year yield had eased to about 6.76% after the RBI struck a dovish tone on August 5. But traders said that support faded after the central bank moved a month ahead of schedule to shut a zero-cost swap facility used to hedge foreign-currency deposits raised from non-resident Indians. Nuvama told clients that the earlier closure would reduce the extra liquidity support for bonds, especially after the scheme drew strong demand.
That deposit window had attracted more than $50 billion, underscoring the scale of inflows before the close. Separate reports over the past two weeks put the total nearer $40.8 billion by the end of July, suggesting the scheme was already drawing sizeable interest before the RBI pulled it back. Policy observers said the central bank was likely trying to balance support for external inflows against the risk of adding too much domestic liquidity.
Oil prices added to the pressure. Brent crude briefly approached $92 a barrel in Asian trading after the 60-day US-Iran ceasefire expired on Monday, with no sign of renewal. For India, a major oil importer, that matters because dearer crude can feed inflation, widen the current-account deficit and complicate the government’s fiscal maths. Overnight index swap rates also climbed for a second day, with a paying bias across the curve, as markets adjusted to the reduced policy support and looked ahead to global yields, geopolitics and the RBI’s next move.
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