The government bond yields fell on Tuesday, as sentiment was supported by expectation of progress towards inclusion of bonds in global indices.
The benchmark 10-year government bond yield ended at 7.1893% against 7.2534% on Monday. The yield fell 13 bps in August, after easing 13 bps in July. The new 10-year 7.26% 2032 bond yield ended at 7.1757% after ending at 7.2347% on Monday.
"The news of some progress towards inclusion of Indian bonds in global index has gripped the market and continues to support bullish positions," said Abhishek Upadhyay, senior economist at ICICI Securities Primary Dealership.
The benchmark bond yield had eased on Friday after a media report stated that JPMorgan was speaking to large investors over adding India to its emerging-market bond index.
The bank was seeking investor views on whether to make a large chunk of the Indian government bond market eligible to be included in the GBI-EM Global Diversified index of local currency debt.
Goldman Sachs had said earlier this month that it expects India to be included in global bond indices in 2023, potentially leading to passive inflows of around $30 billion.
Intraday, further gains were capped, as traders were cautious ahead of data on economic growth due on Wednesday when markets will be closed for a festival.
The economy is forecast to have expanded by an annual 15.2% in the April-June quarter, thanks to a weak base last year and a rebound in consumption as pandemic restrictions eased, a Reuters poll of 51 economists found.
Meanwhile, the Brent crude contract staying firmly above $100 per barrel, added to anxiety over build-up in inflationary pressures.
India is a major importer of crude oil and domestic consumer inflation has stayed stubbornly above 6% for seven straight months.