India bonds could rally some more as fundamentals favour bulls

Indian government bonds could rally some more at the start of a ​new week as benign oil prices and Treasury yields boost investor ‌sentiment, while the focus remains on inflation data ​due this week in India and the ⁠US .

The benchmark 6.94% 2036 bond yield is likely to hover between 7.15% and 7.20%, a private-bank trader said. It ended at ‌7.1898% on Friday, leading to a weekly decline of 22 basis points.

The 10-year benchmark bond yield ‌posted its steepest weekly drop since October 2019, ‌after ⁠a Democratic victory in the US midterms sank crude ⁠prices and unleashed a rally in Treasuries.

The election outcome rekindled hopes for a resolution to the Iran war, sending oil prices down ​more than 16% for ‌the week, their sharpest slide since April 2020.

"Bond bulls have taken over the market for now, and we could see some more rally, but volatility would ‌be the risk factor," the trader said.

Oil prices fell ​in Asian hours after US President Donald Trump said he was highly unlikely to order ⁠fresh attacks on Iran while talks to end the conflict make progress, despite both nations' reports of attacks on ships ‌in or near the Strait of Hormuz.

Crude prices are crucial for an import-dependent nation such as India as it impacts the local currency, inflation trajectory and government finances.

Traders will be focusing on India's October inflation data, due on Thursday, and its implications for the Reserve Bank ‌of India's policy path, after the oil-price retreat tempered expectations of aggressive ​policy tightening.

India's consumer inflation likely rose to 5.93% in October from 5.54% in September, nearing ⁠the upper end of the RBI's 2%-6% target range as food ⁠prices climbed, a Reuters poll showed.

The 1-year OIS ‌rate dropped 39 bps last week to 6.33%, the 2-year dropped 40 bps to 6.34%, and the 5-year ​rate tumbled 38 bps to end at 6.48%.

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