India bonds inch up tracking US Treasuries; debt supply eyed

Indian government bonds rose in early deals on Friday, buoyed by a rise in U.S. Treasuries, with traders awaiting a weekly debt sale.

The yield on the 6.79% government bond maturing in 2034 was at 6.2696% as of 10:30 a.m. IST, compared with the previous close of 6.2742%.

The yield on the new 10-year benchmark 6.33% bond maturing in 2035 was at 6.2246%, versus its previous close of 6.2302%.


Yields move inversely to bond prices.

The yield on the 10-year U.S. Treasury fell 10 basis points from Wednesday's high of 4.52%, as key data showed signs of a sluggish U.S. economy, boosting bets that the Federal Reserve will cut interest rates at least twice this year.

India's debt sale, due later in the day, is expected to see strong demand, traders said.

"We might see some further downward move, but mostly the yield on the old 10-year will trade in the range of 6.25% to 6.26% in the day," a trader at a primary dealership said.

"Overall, the environment bodes well for the bulls."

India's banking system liquidity surplus rose to 2.22 trillion rupees ($25.9 billion) on Thursday, the highest level in nearly 7 weeks, after the central bank's debt purchase.

Investors are piling on wagers for a further rally in bonds as they anticipate a large dividend payout by the central bank to the government near month-end.

RATES

India's overnight index swap (OIS) rates dropped in early trades due to a high receiving bias on easing U.S. Treasury yields.

The one-year OIS rate was down 1 basis point at 5.62%, the two-year OIS rate was lower by 1 basis point at 5.50%, and the most liquid five-year OIS rate fell 2 basis points to 5.65%.

($1 = 85.6775 Indian rupees).