INDIA BONDS -Indian bonds fall and follow US government bonds as demand lags

Indian government bonds fell on Monday as weaker US government bonds set the tone for a market still feeling it is missing out on an inclusion in Bloomberg’s Global Aggregate Bond Index, while investors largely ignored a cut in government bond issuance for the week.The yield on the ten-year benchmark bond was 6.6842%. On Friday it ended at 6.6767%.

Bond yields rise when prices fall.
Ten-year U.S. Treasury yields rose 7 basis points on Friday after stronger-than-expected employment data dented expectations for the rate cut, adding to market woes in a week when Fed Chairman Jerome Powell revealed the Trump administration had threatened him with criminal charges.

Higher U.S. yields weighed on Indian bonds, with investors on Tuesday shrugging off a cut in weekly government borrowings to 130 billion rupees ($1.43 billion), well below the originally planned 386 billion rupees.

Attention turns to India’s federal budget for the financial year 2027, which is due on February 1.

“We remain cautious on bonds given supply pressures and a lack of demand. In terms of the budget announcement, we think higher-than-expected borrowing would likely have a bigger impact,” Nomura analysts said in a note. Nomura expects gross loans in New Delhi to rise to a record 17.50 trillion rupees in the financial year starting in April.

Market participants also expect the central bank to continue its open market purchases as demand for debt has remained subdued since Bloomberg Index Services postponed India’s inclusion in its main bond index. The central bank has bought 2.54 trillion rupees worth of bonds since December.

PRICES

Indian overnight index swap (OIS) rates remained under pressure from rising US yields.

The one-year OIS rate rose 3.5 basis points to 5.57%, while the two-year swap rate ended 4.25 basis points higher at 5.68%. The five-year OIS rate stood at 6.07%, 4.25 basis points higher than the previous closing rate. ($1 = 90.9120 Indian Rupees)