India bond yields fall on bargain hunting, as U.S peers ease

Indian government bond yields settled lower on Tuesday as the recent surge in yields made fresh investments attractive and as U.S. Treasury rates came off highs.

However, the fall in yields was capped as caution prevailed on the Reserve Bank of India's plan to sell bonds to contain banking system liquidity.

The benchmark 10-year bond yield closed at 7.3471% after ending the previous session at 7.3806%. The yield rose 17 basis points in the last two sessions.

"The benchmark bond yield eased today on value buying as yesterday's sharp rise was largely on account of speculations that the central bank may announce details of an open market sale soon," said Yogesh Kalinge, vice-president at A.K. Capital Services.

The 10-year bond yield is unlikely to rise beyond 7.40% till the announcement of the bond sale, Kalinge added.

The central bank could sell around 500 billion rupees ($6 billion) of government bonds to narrow banking system liquidity, with the supply front-loaded in this quarter, treasury officials said.

Market participants keenly await the timing and the choice of papers that will be up for sale at the so-called open market operations. Separately, New Delhi will sell bonds worth 340 billion rupees on Friday.

Meanwhile, global pressures on bonds eased marginally.

The 10-year U.S. benchmark made their sharpest rally in more than a month on Tuesday amid demand for safe assets following the military conflict in the Middle East.

The 10-year U.S. yield was at 4.7028% against Friday's close of 4.887%, which was the highest since 2007.

Crude oil prices also eased after rallying more than 4% in the previous session.