Indian government bonds are expected to exhibit range-bound trading in the near term, as the market awaits fresh debt supply and the unveiling of the federal government's borrowing calendar for the second half of the fiscal year. This calendar is a key factor influencing market sentiment, as participants are keen to assess the government's borrowing plans and the potential supply of longer-tenor debt.

Factors Influencing the Range-Bound Movement

Several factors contribute to the anticipated range-bound movement of Indian government bonds:

• Debt Supply and Borrowing Calendar: The primary driver for the cautious trading is the anticipation of new debt supply and the release of the federal borrowing calendar for the second half of the fiscal year. The market is keen to understand the government's borrowing requirements and the composition of debt, particularly the proportion of longer-tenor bonds.
• Technical Levels: Traders are closely monitoring key technical levels on the 10-year benchmark note. The yield on this note is expected to fluctuate between 6.47% and 6.52%. A breakout beyond this range could signal a directional shift in the market.
• RBI Policy Decision: The Reserve Bank of India's (RBI) upcoming monetary policy decision, due on October 1, is also a significant factor influencing market sentiment. The market will be looking for cues from the central bank regarding its future interest rate trajectory and overall monetary policy stance.
• Global Cues: Rising U.S. Treasury yields could exert some pressure on Indian bond yields. Monitoring global interest rate movements and other international economic developments remains crucial for assessing the direction of the Indian bond market.

Market Expectations and Trading Strategies

Market participants anticipate that the government's debt supply calendar will be released after market hours or early next week. This release will provide clarity on the government's borrowing plans for the remainder of the fiscal year and is expected to be a major trigger for market movement.

Traders suggest that the 10-year bond yield needs to break the 6.45% to 6.52% range to establish a clear directional bias. Until then, a range-bound trading strategy is expected to prevail.

Broader Market Context

While government bonds are expected to trade in a narrow range, corporate bonds and other spread assets like state government securities may offer relatively better opportunities for investors. The Indian bond market has shown resilience amidst global economic volatility, supported by the RBI's monetary approach and the central government's fiscal discipline.

The Indian bond market has grown to $2.69 trillion by the end of September 2024, marking its position as a key player in global debt markets. Furthermore, the inclusion of Indian government bonds in global bond indices is expected to enhance its attractiveness and ensure robust liquidity and demand.