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Government Security Market Update:

The Indian 10-year benchmark tested the 6.50% level after the tariff imposed by the U.S. on India and the buying interest emerge by the major traders at this crucial level and yield drifted down to 6.47% mark and again moved towards 6.49% mark before the debt auction of Friday. The auction is being seen as a key test of demand for longer-term notes. India’s retail inflation dropped to an over eight-year low of 1.55% in July, aided by a sharp cooling in food prices, according to government data released this week. This is the first time in more than six years that inflation has fallen below the Reserve Bank of India’s (RBI) 2–6% tolerance band, and it marks the lowest year-on-year rate since June 2017. Food inflation, which accounts for nearly half of the Consumer Price Index (CPI) basket, contracted by 1.76% in July, deeper than the 1.06% contraction recorded in June. Earlier in a week the six states sold 3-35 years loan in the range of 6.4377 to 7.43% and in the Treasury bill auction the Reserve Bank of India sold 91; 182 & 364 DTB at a yield of 5.4902; 5.5678 & 5.5898% respectively. In a weekly auction the government sold 6.01% GS 2028 & the new 30-year GS at a yield of 6.2572 & 7.24% respectively. Later, on Thursday during the market hours the S&P upgraded India’s rating to ‘BBB’ from ‘BBB-‘and its shortterm ratings to ‘A-2’ from ‘A-3’ and the 10-year benchmark bond yield eased to 6.4052 percent as compared to 6.48% before the debt sale. The yield on the 6.33% Government bond due May 2035 fell to 6.4003% from 6.4121% last week.

Global Debt Market Update:

U.S. Treasury yields rose on Friday after July’s retail sales and consumer sentiment data. The 2-year yield added 2 basis points to 3.757%. The benchmark 10-year note yield rose 3 basis points to 4.324%. July’s retail sales data, released on Friday morning, indicated that consumers are reacting well to tax changes and tariffs. Retail sales rose 0.5% last month, matching expectations from the Dow Jones consensus. The producer price index, a measure of wholesale U.S. inflation, climbed by a far larger-than-expected 0.9% in July on a month-over-month basis on Thursday. Despite the higher inflation number, Fed funds futures were still pricing in about 85% odds of an interest rate cut in September. The latest PPI reading defied market forecasts, resuming the upward trend seen over the past three years. Analysts had expected a 2.5% annual increase, but the actual figure came in at 3.3%. Core PPI also exceeded expectations, rising more than a full percentage point from the prior reading to reach 3.7% year-over-year. The data jolted markets: the 10-year U.S. Treasury yield moved higher, and the U.S. Dollar Index advanced 0.5% intraday. The dollar remains down roughly 10% year-to-date in 2025, and expectations of monetary easing have weighed on its value. However, the stronger PPI raises the risk that August’s Personal Consumption Expenditures (PCE) index could also surprise to the upside.

Bond Market Ahead:

Indian bonds likely to move positively after the rating upgrade from the S&P, the rating agency said that the stable outlook reflects continued policy stability and high infrastructure investment will support India’s long-term growth prospects. The upgrade of India reflects its buoyant economic growth, against the backdrop of an enhanced monetary policy environment that anchors inflationary expectations. Upgrade of the rating will give the confidence to the foreign investors to invest in India’s projects and more money will flow to the bonds and equity market. The benchmark 10-year bond yield has risen 24 basis points since the RBI’s surprise 50-bps rate cut in June, when it shifted its stance to “neutral” from “accommodative”. The 30-year bond is trading at a spread of 180 bps over overnight rates, but the supply - demand scenario is a problem and most of the funds and investors have cut down duration as the rate easing may not happened. But if the supply cut happens and the RBI eased the rates further then we’ll see sanctity coming back to that segment and some spread compression on the longer end. In the short-term Yield may stay near current levels (~6.40%) or edge slightly higher, given ongoing fiscal risks and demand –supply imbalances. Global yield trends and investor sentiments will also sway movements.

Bond Strategy:

* Buy 6.33% GS 2035 around 6.41 to 6.42 with a target of 6.37% and a stop loss of 6.45%

* Buy 6.90% GS 2065 around 7.21 to 7.22 with a target of 7.18% and a stop loss of 7.26%

Yield Outlook for the week

The Indian 10 year Benchmark ( 6.33% GS 2035) likely to move in the range of 6.37 to 6.42%.

SEBI Registration number is INH000000081.

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