Indian Bonds Rally on Monsoon Hopes

Indian government bond yields continued to decline on Monday, bolstered by more favorable monsoon rains and persistent foreign investment. The benchmark 6.94% 2036 bond yield closed at 6.6851%, falling below the crucial 200-day moving average for the first time since October 2025. This technical break could attract further buying, with analysts predicting the 10-year yield might reach 6.64% soon. Concerns over the monsoon have eased as the cumulative rainfall deficit narrowed significantly. However, risks related to food inflation persist due to the El Nino phenomenon. The bond rally was also propelled by strong foreign demand, with overseas investors net buying over 346 billion rupees ($3.63 billion) in Indian government bonds since June 1. This inflow was encouraged by policy measures designed to attract foreign exchange and support the rupee. Separately, India's overnight index swap rates eased further. This movement reflects cooled monsoon worries and diminished expectations of an immediate domestic interest rate hike, with one-year, two-year, and five-year swap rates all showing declines.