Core Viewpoint - The Reserve Bank of India's bond-buying strategy has led to a bullish sentiment in the bond market, although significant rallies are expected to be limited until the actual auction occurs [1][6]. Bond Market Dynamics - The benchmark 10-year yield was recorded at 6.5949% as of 10:10 a.m. IST, slightly up from 6.5931% on the previous Friday, with a recent easing to 6.5741% [1][6]. - The RBI plans to purchase bonds worth 500 billion rupees ($5.52 billion) on Thursday, including more liquid papers such as the 7.18% 2033 and 6.33% 2035 bonds [6]. - The RBI's bond purchases for the current financial year have reached a record high, with expectations of further purchases in the last quarter [4][6]. Recent Market Movements - Bond yields experienced a significant increase last week, rising by 10 basis points, marking the largest jump since the week ending August 18, driven by heavy activity in overnight index swaps and position adjustments by foreign investors [5][6]. - Despite a recent rate cut and liquidity injection by the RBI, bond yields and swap rates have increased, indicating skepticism among traders regarding further monetary policy easing [5][6]. Inflation Outlook - Inflation is anticipated to rise due to the depreciation of the rupee, with forecasts of 1.8% for FY26 and 3.4% for FY27, although no changes in the RBI's current rate stance are expected at least until February [5][6]. Swap Rates - India's overnight index swap rates remained largely unchanged as traders paused after last week's volatility, with the five-year OIS rate stable at 5.9150% amid low trading volumes [6].

Core Viewpoint - The Indian government bonds have experienced a decline for the second consecutive week, influenced by hawkish commentary from the U.S. Federal Reserve and ongoing concerns regarding debt supply, which have negatively impacted investor appetite [7]. Group 1: Yield Movements - The yield on the 10-year benchmark ended at 6.4885%, slightly down from 6.5139% on Thursday, marking a marginal increase over the week after a rise of 2 basis points last week [1][7]. - Yields move inversely to prices, indicating a complex relationship between bond prices and interest rates [2][7]. Group 2: Federal Reserve Actions - The Federal Reserve reduced interest rates by 25 basis points and signaled the possibility of an additional 50 basis points of cuts in 2025, although Chair Jerome Powell emphasized a "meeting-by-meeting situation" regarding future rate cuts [2][3][7]. - The current rate cut cycle may not be extensive, as suggested by Gaura Sen Gupta, chief economist at IDFC First Bank [3][7]. Group 3: Local Market Dynamics - There are ongoing concerns in the local market regarding constant supply from the central and state governments, which has contributed to rising yields and altered demand-supply dynamics [5][7]. - Traders are anticipating the borrowing calendar from the central government for the second half of the fiscal year, expected to be published before the end of September [6][7]. - The Reserve Bank of India (RBI) has advised states to diversify their borrowing across different tenures instead of concentrating on long-term bonds and to communicate their fundraising plans more clearly [6][7]. Group 4: Overnight Index Swaps - India's overnight index swaps (OIS) rates showed mixed results, with the one-year OIS rate at 5.45%, the two-year OIS rate at 5.42%, and the liquid five-year OIS rate ending at 5.71% [7].