Indian government bonds rose on Tuesday, with the benchmark 10-year yield on track for its biggest monthly decline in nearly seven years, supported by lower oil prices and a pickup in foreign buying.
The yield on the benchmark 6.94% 2036 bond was at 6.7223% by 11:45 a.m. IST, its lowest since March 18. It has declined 28 basis points in June, its steepest monthly fall since July 2019.
Indian debt has gained momentum this month after the Reserve Bank of India introduced measures to attract dollar inflows and support the rupee, while the government removed taxes on foreign investment in government bonds.
Foreign investors have bought nearly $3 billion of Fully Accessible Route (FAR) bonds so far in June, the highest monthly inflow on record, clearing-house data showed.
FAR securities are already included in three major emerging-market debt indexes.
The tax changes have also strengthened the case for inclusion in the Bloomberg Global Aggregate Index, said Parul Mittal Sinha, head of markets for India and South Asia at Standard Chartered Bank.
Brent crude has fallen more than 21% this month after an interim U.S.-Iran peace deal paused hostilities and reopened the Strait of Hormuz. At about $72.50 a barrel, prices are back near pre-war levels and well below the late-April peak of $120.
India is the world's third-largest oil importer and is highly vulnerable to oil swings.
"The all-in FX package to attract inflows and the fall in oil prices have flipped the BoP outlook," HSBC said in a note. It now forecasts a $25 billion balance of payment surplus for the current financial year ending March 2027, after two years of deficit.
RATES
India's overnight index swaps also plummeted in June tracking oil and paring rate hike bets.
Short-term rates are set for their biggest monthly drop in 15 months, while longer tenors are poised for their steepest plunge in three and a half years.
The one-year OIS rate was at 5.75%, the two-year at 5.89%, and the five-year at 6.1750%.
