Indian government bonds were largely unchanged on Thursday as traders searched for fresh cues, while oil prices consolidated due to uncertainty over a U.S.-Iran peace deal.
Investors shrugged off Wednesday's domestic and U.S. inflation data, which reinforced expectations that neither central bank would move on rates soon, traders said.
The benchmark 6.94% 2036 bond yielded 6.7748% at 11:25 a.m. IST, barely changed from Wednesday. Bond yields move inversely to prices.
Benchmark Brent crude held near $88.9 a barrel in Asian trading, as Iran and the United States remained at loggerheads over a deal to end the Gulf war, a senior Iranian source told Reuters, who said there had been no progress on reviving an interim pact agreed in June.
As the world's third-largest oil importer, India benefits materially from lower crude prices, which ease imported inflation and current-account pressures, strengthen the macro outlook and make room for lower bond yields.
Late on Wednesday, data showed U.S. retail inflation edged up 0.1% in July after declining in June, while annual inflation slowed to 3.4% from 3.5%.
"Two muted inflation prints in a row should be sufficient to quell worries that price pressures are broadening beyond energy," DBS Bank said, adding that softer labour-market momentum reduced the case for near-term Federal Reserve tightening.
The U.S. 10-year yield was little changed after the data.
"Lower U.S. inflation and reducing Fed hike bets reinforce the case for a prolonged rate pause in India, keeping bonds rangebound," a private-bank trader said.
India's retail inflation rose to 4.45% in July from 4.38% in June.
RATES
India's overnight index swaps drew receiving interest after U.S. inflation data soothed rate hike worries.
The one-year rate fell 1 bp to 5.76%, the two-year rate was slightly lower at 5.9550%, and the liquid five-year rate slipped 1 bp to 6.2725%.
