INDIA BONDS-India bonds stall on geopolitical risk, heavy supply

By Khushi Malhotra

MUMBAI, Feb 23 (Reuters) - Indian government bonds traded in a narrow range early on Monday, as concerns over geopolitical developments and a domestic supply overhang muted demand.

Risk appetite for U.S. debt weakened after the U.S. Supreme Court struck down President Donald Trump's tariffs, while the Trump administration imposed fresh levies immediately after. The moves spilled over into domestic sentiment, keeping traders cautious.

Nuclear talks between the U.S. and Iran have also put pressure on oil.

Brent crude futures LCOc1 fell about 1% to $71.07 on Monday, but oil prices were still close to their six-month peak, a key risk for net energy-importer India.

Parallelly, traders cautiously awaited two large debt sales. Indian states will raise 445.5 billion rupees ($4.91 billion) in their biggest weekly debt sale on Tuesday, while New Delhi will auction the benchmark 10-year note on Friday.

The benchmark 6.48% 2035 bond yield was at 6.7143% as of 10:30 a.m. IST. It ended at 6.7215% on Friday, after rising 4 basis points, its biggest jump in two weeks.

"No further escalation in the Iran-U.S. conflict helped ease jitters, but the market should stay rangebound with heavy supply coming in," a trader at an asset manager said.

Separately, two members of the Indian central bank's rate-setting committee indicated potential for future rate cuts, helping improve sentiment and spurring some buying at open, traders said.

Yields rose in the second half of last week, but some investors cited value in buying government bonds.

The "others" category, which includes insurers, pension funds, corporates and the central bank, was the biggest net buyer last week, with purchases of 19.6 billion rupees. Foreign banks, private banks and mutual funds stayed net sellers.

RATES

India's overnight index swap (OIS) rates eased as sentiment improved on lower oil prices.

The one-year OIS rate INR1YMIBROIS=CC was flat at 5.52%. The two-year rate INR2YMIBROIS=CC and the five-year OIS rate INR5YMIBROIS=CC fell 1.5 bps to 5.63% and 6.0775%, respectively.

($1 = 90.7475 Indian rupees)