Mumbai: Indian government bonds showed little movement early Monday, balancing softer-than-expected U.S. employment figures that reduced chances of a Federal Reserve rate increase against climbing oil prices that kept market participants cautious. The U.S. Labor Department reported Friday that the unemployment rate dropped to 4.1 percent last month from 4.2 percent in June, as labor force participation reached a near five-and-a-half-year low. U.S. Treasury yields declined following the release, and traders lowered the probability of a September rate hike to 42 percent from 67 percent the prior week. Reduced expectations for tighter U.S. policy supported demand for longer-maturity Indian securities, although higher oil prices in Asian trading limited overall risk appetite. Brent crude futures advanced 0.4 percent to 83.90 dollars per barrel, extending gains for a fourth session. The benchmark 6.94 percent 2036 Indian bond yielded 6.7594 percent at 11:25 a.m. IST, compared with 6.7651 percent at Friday’s close. Yields on 30-year and 40-year bonds each declined two basis points to 7.3913 percent and 7.4834 percent. Bond yields move in the opposite direction of prices. Longer-term Indian bonds have faced pressure since the start of the U.S.-Iran conflict, as elevated oil prices raised worries about global inflation and potential interest rate increases. A private-bank trader noted that lower expectations for U.S. tightening strengthen the case for extending duration in India, especially since the Reserve Bank of India appears unlikely to raise rates before December. The central bank maintained its policy rate last week but reduced its inflation projections, leading analysts to delay forecasts for additional hikes. Market participants will monitor inflation data from both India and the United States due this week. A Reuters survey of 40 economists projected India’s July retail inflation would increase to 4.50 percent from 4.38 percent in June. Overnight index swaps in India eased in line with offshore trends. The one-year and two-year swap rates edged lower to 5.7575 percent and 5.9425 percent, while the most active five-year swap rate fell 1.5 basis points to 6.2475 percent.
