Indian bond rally seen extending on weaker oil, Treasury yields

Indian government bonds are likely to extend their recent gains in ​early trade on Tuesday, supported by a sharp decline in ‌crude oil prices and softer US Treasury yields, ​although investors remain cautious ahead of ⁠the US midterm elections.

The benchmark 6.94 per cent 2036 bond yield is seen trending in a 7.28 per cent-7.33 per cent range, a private bank trader ‌said, after ending at 7.3154 per cent on Monday. The 10-year yield has eased about 12 basis points ‌in the last three sessions.

"The narrative has ‌shifted ⁠towards bond buying now, and there is ⁠still some juice left to add fresh bets," the trader said.

Oil prices fell more than 7 per cent on Monday as talks between Iranian ​and Qatari officials lifted ‌hopes for an end to the US-Iran war and stabilisation of Middle East crude supply.

The negotiations took place against concerns the war could flare up ‌again after the November 3 US midterm ​elections.

President Donald Trump has said the United States will not launch fresh attacks on ⁠Iran before the vote and described talks with Tehran as productive, while stopping short of ruling out military ‌action afterward.

Investors are closely watching the elections, which will determine whether Republicans retain control of Congress during Trump's final two years in office or cede majority control to Democrats.

Opinion polls suggest Democrats could regain control of the House of Representatives and potentially the ‌Senate.

Benchmark Brent crude ended below $105 per barrel on Monday and stayed ​there in Asian hours on Tuesday.

Meanwhile, longer-dated US Treasury yields eased on Monday as ⁠falling oil prices helped alleviate inflation concerns, providing additional support ⁠for emerging-market debt.

On Monday, the one-year ‌OIS fell 6.25 bps to 6.6575 per cent, the two-year was down 7.25 bps at 6.6750 per cent, and the five-year ​settled 8.75 bps lower at 6.7750 per cent.

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