September 12, 2025

Indian government bonds showed a slight rise on Thursday, just before the much-awaited inflation data from both India and the US. The yield on the 10-year benchmark note dipped a bit, settling at 6.4666%, down from 6.4790% at the close of the previous day. Why this drop? Investors got ready for fresh inflation figures that could shake up markets. India's consumer price inflation for August is expected to have climbed to 2.1%, up from a low of 1.55% in July, thanks to fading base effects and rising food costs, according to a Reuters poll. This inflation number is important because the Reserve Bank of India (RBI) tries to keep inflation between 2% and 6%. So far this year, the RBI has cut rates by 100 basis points but paused at the last meeting. Experts say this mild rise in inflation might not trigger another rate cut just yet. Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank, explained, "The central bank's rate cut path will depend on its outlook on inflation in Q4 FY26 and Q1 FY27. Current projection from RBI doesn't leave scope for lowering rates." Over in the US, traders hope for lower inflation, which could boost chances of the Federal Reserve cutting rates. US retail inflation numbers for August are expected after Indian market hours on Thursday, with predictions of 2.9% year-on-year, slightly up from 2.7% in July. All eyes also remain on India's upcoming second-half borrowing plans, with hopes New Delhi might reduce the supply of long-term bonds. On Friday, the government plans to auction bonds worth 280 billion rupees ($3.18 billion). Meanwhile, rates in the overnight index swaps (OIS) market slightly dipped ahead of the US inflation announcement, signaling increased bets on a Fed rate cut. The one-year OIS rate was 5.455%, the two-year was 5.4375%, and the active five-year OIS ended at 5.68%. These movements reflect market sentiment about future interest rates. In short, investors are playing a cautious waiting game, with inflation data and central bank moves likely to create some fireworks soon!

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Tags: Indian government bonds, Inflation data, Rbi rate cut, Us inflation, Yield, Borrowing,