India bonds may see positive opening, local and US inflation data in focus

Indian government bonds could trend higher at the start of the new ​week, with crucial inflation prints in India and the US set ‌to be released and could provide cues on ​interest rate movements.

The yield on the benchmark ⁠6.94 per cent 2036 bond is expected to trade in the 6.75 per cent to 6.79 per cent range, according to a trader at a private bank, ‌after closing at 6.7651 per cent on Thursday. Bond yields move inversely to prices.

US Treasury yields fell on ‌Friday after data showed that employers unexpectedly shed ‌23,000 ⁠jobs in July, against analyst expectations of a ⁠rise of 80,000 jobs, indicating signs of weakness in the economy.

The unemployment rate eased to 4.1 per cent as labour participation fell, defying expectations for ​the rate to remain ‌steady at 4.2 per cent.

This prompted traders to cut odds of a Federal Reserve interest-rate hike in September to 42 per cent, from 55 per cent before the data release and 67 per cent last week.

"There ‌should be some positive opening, but any ​major moves are unlikely as we are very close to the key 6.75 per cent levels, which is ⁠unlikely to be taken away very easily unless some new development takes place," the trader said.

Traders are to remain ‌focused on inflation prints from India and the US, both due on Wednesday, and will provide crucial guidance on the interest rate trajectory.

A Reuters poll of 40 economists has forecast that India's retail inflation rate will rise to 4.50 per cent in July from 4.38 per cent in June. Underlying sentiment ‌stayed supportive for prices as a dovish local monetary policy has ​led analysts to push back their calls for rate hikes. India's central bank kept the repo rate ⁠unchanged last Wednesday, but cut its inflation forecast for the ⁠year and promised sufficient liquidity for the banking system.

India's overnight index swap rates could see marginal declines ‌after aggressive receiving last week.

The one-year swap ended at 5.77 per cent, the two-year closed at 5.94 per cent, and the ​most liquid five-year swap settled at 6.26 per cent.

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