By Dharamraj Dhutia
Indian government bonds are likely to remain largely unchanged on Wednesday as traders look for fresh triggers at the start of a new quarter, although underlying sentiment remains bullish after the 10-year yield logged its biggest monthly decline in seven years.
The benchmark 6.94% 2036 bond yield (IN069436G=CC) is expected to trade between 6.72% and 6.78%, a private bank trader said. It closed at 6.7501% on Tuesday. Bond yields move inversely to prices.
The 10-year bond yield tumbled 26 basis points in June, its steepest monthly fall since July 2019, and 28 bps in the April-June period, its biggest quarterly decline since the quarter ended March 2020.
"For bank treasuries, the rally in June boosted the entire quarter. Going ahead, the prospect of index inclusion and the progress of the monsoon remain key drivers for bonds," the trader said.
Indian bonds rallied last month as foreign investors poured a record 299 billion rupees ($3.16 billion) under the Fully Accessible Route after New Delhi and the central bank announced measures to attract foreign capital and support the rupee.
This has boosted the chances of domestic bonds being included in Bloomberg's Global Aggregate Index, leading to heavy inflows.
Globally, U.S. yields rose on Wednesday as traders priced in a 67% probability of a U.S. rate hike in September, against the odds of less than 30% until last week.
Brent crude hovered at around $73 per barrel in Asian hours, as investors assessed Iran's decision to not meet U.S. envoys and its implications on the ceasefire.
RATES
India's overnight index swap rates are likely to start July on a muted note.
The one-year (INR1YMIBROIS=CC) rate ended at 5.76%. Meanwhile, the two-year (INR2YMIBROIS=CC) swap rate slumped 38 bps to 5.9050%, and the five-year (INR5YMIBROIS=CC) rate tumbled 42 bps to 6.1750%. Both logged their biggest monthly declines since November 2022.
($1 = 94.6600 Indian rupees)