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Indian government bond yields are expected to remain stable, with market participants tracking upcoming state debt auctions and global developments, particularly US-Iran discussions. States are set to raise INR 169 billion through bond sales across varying maturities, adding supply pressure. Meanwhile, movements in crude oil prices continue to influence investor sentiment, given India’s dependence on imports. Although oil prices saw volatility due to geopolitical tensions, expectations of continued dialogue between the US and Iran are providing some stability. Swap rates also showed limited movement, reflecting a cautious and range-bound market outlook.
Indian government bond yields are likely to remain largely unchanged in early trade, as market participants monitor fresh supply from state bond issuances and track global developments around discussions between the United States and Iran. Advertisement
The benchmark 6.48% 2035 government bond yield is expected to move within a narrow range of 6.87% to 6.91%, according to a trader from a private bank. The yield had settled at 6.8901% in the previous session, indicating a stable trend with limited immediate triggers.
State governments are scheduled to raise around INR 169 billion through bond sales with maturities ranging from seven to 30 years. This additional supply is likely to be absorbed cautiously by the market, as participants assess demand conditions and liquidity.
Market participants indicated that the key factor influencing bond movements over the next few days would be the direction of crude oil prices, along with developments in geopolitical discussions involving the US and Iran. The existing ceasefire between the two nations is nearing its end, and investors are closely watching whether it will be extended or lead to a broader agreement.
Crude oil prices showed some easing on expectations that discussions between the US and Iran may progress, potentially allowing more oil supply from the Middle East. However, prices had risen sharply in the previous session after Iran shut the Strait of Hormuz again, a critical route for global oil shipments, while the US intensified its actions by seizing an Iranian cargo vessel as part of its ongoing restrictions.
Despite these tensions, market sentiment is currently guided by expectations that diplomatic efforts may help stabilise supply. This is significant for India, where crude oil imports account for nearly one-fourth of total imports, making the economy sensitive to fluctuations in global oil prices.
In the interest rate derivatives segment, overnight index swap (OIS) rates are also expected to remain range-bound due to muted trading volumes. The one-year OIS rate closed at 5.78%, while the two-year rate ended at 5.9750%. The more liquid five-year swap rate settled slightly lower at 6.3525%, reflecting limited directional bias in the market.
Source Reuters
5th Jun, 2025
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