India bonds hang tight before supply as oil stalls

Mumbai: Indian government bonds stabilized early Friday as oil prices settled, providing some respite following hawkish central bank minutes and a surge in crude prices that had sent the market on a downward trajectory. The Indian government planned to issue a 280 billion rupee debt sale later in the day, with a 15-year bond accounting for more than half of the supply.

The benchmark 6.94% 2036 bond yielded 6.8723% at 10:45 a.m. IST, close to Thursday's finish and a two-month peak. The yield had climbed by around 12 basis points over the week, on course for its largest weekly rise since April 3.

Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank, noted a weakening market sentiment due to hawkish RBI policy minutes, though the auction was expected to attract sufficient demand. Brent crude futures stabilized, hovering near $93.5 a barrel in Asian markets. Market sentiment had weakened since the RBI released its minutes from the August meeting on Wednesday, which adopted a more hawkish stance than the policy statement.

Anticipated RBI rate hikes in 2023 had re-emerged as inflation pressures mounted, while domestic support waned after the central bank advanced by a month the closure of a dollar-enticing scheme that had previously driven bond demand. Retail inflation in July surged to 4.45%, surpassing the RBI's 4% medium-term target. Analysts suggested that higher oil prices and global yields would determine the market's following trajectory, with the US 10-year Treasury yield nearing 4.70%, exerting additional pressure.