India bonds dip as RBI's diaspora swap move dents sentiment

According to Business Recorder, Indian government debt weakened on Monday morning after the Reserve Bank of India brought forward the end of a discounted swap facility for diaspora foreign-currency deposits. By 10:45 a.m. IST, the 6.94% 2036 benchmark bond's yield had climbed 3.5 basis points to 6.7909%. Because yields and prices move in opposite directions, that rise points to softer buying, and the early closure removes a source of demand that had supported purchases of longer-dated paper.

Lenders now have a new cut-off of 31 August, set on Friday after inflows exceeded $52 billion. The facility formed part of a June package intended to strengthen India's balance of payments, while the inflows pushed forex reserves to a four-month peak of $707 billion recorded on 7 August. Banking-system liquidity tripled in August to 3.1 trillion rupees, up from nearly 1 trillion rupees in July.

A private-bank trader warned that the four- to six-year bonds bought with diaspora inflows could face heavy selling. Brent crude also firmed in Asian trading, approaching $90 a barrel as doubts about US-Iran negotiations lingered and shipping through the Strait of Hormuz stayed disrupted. Market participants will look to the minutes of the RBI's August policy meeting, due Wednesday, for direction.