Indian government bonds held steady on Friday morning as crude oil prices leveled off, allowing the market to stabilize after a period shaped by hawkish minutes from the central bank and a sudden spike in crude rates. A major debt sale scheduled for later in the day, run by the RBI on behalf of the government, will serve as the next gauge of investor appetite for bonds, with traders typically watching the auction's cutoff yields as a marker for broader market levels.

The near-term direction of the market is expected to be influenced by rising oil prices and global yields, with retail inflation already running above the Reserve Bank of India's (RBI) target. Under its inflation targeting framework, the RBI aims for consumer price inflation of 4%, within a tolerance band of 2% to 6%. India imports the bulk of the crude oil it consumes, so swings in global prices feed through to imported inflation and the trade balance, one reason crude remains a standing variable for a bond market sensitive to the rate outlook.

In the primary market, HDFC Bank, India's largest private sector lender, has raised $1.75 billion through a dual-tranche dollar bond issuance, marking the largest single debt fundraising effort by any Indian bank. The offering comprised $1.25 billion of five-year bonds and $500 million of three-year bonds. Investor demand surged to roughly $7 billion in bids, far exceeding the amount on offer and leaving the deal roughly four times covered.

With order books of that size, banks are hurrying to gather funds ahead of the central bank facility's closure on August 31.

Source: Economic Times Markets