By Dharamraj Dhutia
Indian government bond traders are set to extend recent gains in early deals on Tuesday, as an improving monsoon adds to positive underlying sentiment boosted by foreign investor inflows.
The benchmark 6.94% 2036 bond yield (IN069436G=CC) is expected to trade between 6.65% and 6.70%, a trader at a private bank said, after ending at 6.6851% on Monday, which was its lowest since March 13. Bond yields move inversely to prices.
The 10-year bond yield eased almost 3 basis points on Monday and has declined by an aggregate of 37 bps over the past six weeks.
"Foreign inflows are continuing without any signs of reversal or getting stopped, and monsoon which was the other major worry is also improving, so overall market is driven by the bulls for now," the trader said.
Relentless foreign purchases are expected to continue supporting sentiment, with overseas investors buying more than 351 billion rupees ($3.7 billion) in the last one month, since the central bank's monetary policy decision.
Inflows under the Fully Accessible Route have remained strong after New Delhi and the Reserve Bank of India announced measures to attract foreign capital and support the rupee, boosting the prospects of domestic bonds being included in Bloomberg's Global Aggregate Index.
Monsoon concerns eased after the cumulative rainfall deficit narrowed to 24% below the long-period average as on July 5, compared with a 43.1% deficit as of June 28, Barclays said in a note.
The rally may however hit a minor speed bump in the form of fresh debt supply from states that are set to raise 213.50 billion rupees ($2.24 billion) through sale of bonds later in the day.
RATES
India's overnight index swap rates are likely to consolidate after another round of declines on Monday.
The one-year (INR1YMIBROIS=CC) swap rate ended at 5.73%, while the two-year (INR2YMIBROIS=CC) fell 3 bps to 5.8750%. The five-year (INR5YMIBROIS=CC) rate settled lower at 6.1325%.
($1 = 95.3900 Indian rupees)