Indian government bonds fell for a second consecutive trading day on Tuesday, reversing some of the gains seen earlier in the month. The benchmark 6.94% 2036 bond yield closed at 6.8269%, up 5 basis points from Monday's 6.8071% - the largest single-session rise in that instrument in more than a month.
Yields had previously eased to roughly 6.76% following the Reserve Bank of India's dovish policy message on August 5. That drop in yields reflected market reaction to the central bank's policy stance, but bond prices have now relinquished the gains recorded after that decision.
On Friday, the RBI said it would terminate a zero-cost swap facility one month ahead of the originally planned schedule. The swap, which was introduced in June, provided banks with a hedge for foreign-currency deposits raised from non-resident Indians. The facility drew more than $50 billion of inflows, surpassing expectations, and policymakers had voiced concern about the scheme's effect on domestic liquidity.
Energy markets also moved during Asian trading, with Brent crude trading near $92 per barrel. That rise in oil prices followed the expiration on Monday of a 60-day U.S.-Iran ceasefire, with no indications from either side that the agreement would be extended.
Money-market pricing reflected the changes in rates and liquidity conditions. India overnight index swap rates climbed for a second session: the one-year OIS ended at 5.83%, the two-year closed at 6.0550%, and the five-year settled at 6.42%. Swap rates have risen between 10 and 17 basis points so far this week.
Market context
- Benchmark 6.94% 2036 yield: closed at 6.8269%, +5 basis points from Monday's 6.8071%.
- Earlier post-policy low: about 6.76% after RBI's August 5 dovish stance.
- RBI action: closure of a zero-cost swap facility launched in June that attracted over $50 billion in inflows.
- Brent crude: near $92 per barrel after the expiration of a 60-day U.S.-Iran ceasefire.
- OIS moves: 1-year 5.83%, 2-year 6.0550%, 5-year 6.42%; week-to-date increases of 10-17 basis points.