MUMBAI, Sept 6 (Reuters) - Indian government bond yields fell on Tuesday, as prices rallied for a second day on rising hopes that local bonds could be included in some emerging markets global indexes.
The benchmark 10-year Indian government bond yield ended at 7.1785%. The yield fell one basis point on Monday to end at 7.2182%. The 10-year 7.26% 2032 bond yield ended at 7.1358%, after closing at 7.1776% on Monday.
"Most reasons fundamentally are against any fall in bond yields, but bets of index inclusion is the only factor that is leading to almost daily rally in prices, and we will continue to see market remaining supported," said Pankaj Pathak, fixed income fund manager at Quantum Mutual Fund.
Sentiment has remained bullish in the last few days as investors see some progress in Indian bonds being included in global indexes, spurring foreign inflows.
Last month, Morgan Stanley said in a report that it sees a "good chance" of JPMorgan including Indian government bonds in its emerging markets index, while Goldman Sachs previously said it expects an inclusion in 2023, estimating an inflow of near $30 billion.
Foreign banks and investors have stepped up bond purchases in the last few sessions in anticipation of such a move as early as October, traders said.
Meanwhile, Reserve Bank of India Governor Shaktikanta Das said at an event on Monday that while incoming monthly inflation data could be bumpy in the near term, it could moderate in the second half.
Inflation is likely to move within the central bank's target range of 2%-6% in January-March 2023, and ease further in the first quarter of next fiscal year, he said.
India's July retail inflation dipped to 6.71%, easing for the third month in a row, but remained above the RBI's tolerance band for the seventh consecutive month. The data for August is due next week. (Reporting by Dharamraj Lalit Dhutia; Editing by Dhanya Ann Thoppil)
