India 10-year bond yield clings to 6.85%; traders eye oil moves amid sanctions threat

MUMBAI: Indian government bonds remained stable on Monday, with yields on the benchmark 6.94% 2036 bond unchanged at 6.8595% as of 10:00 a.m. IST. This comes after a weekly increase of the yield's highest level of the financial year last week. Traders are closely monitoring oil prices ahead of an anticipated US announcement on additional sanctions against Iran.

A trader at a primary dealership said, “We expect to hold current levels for the rest of the day. Our next move will depend on whether crude prices head toward $90 or $100 a barrel.”

The US Treasury Secretary is set to brief media later in the day after expressing concerns that Washington could impose "the toughest sanctions in history" on Iran. President Donald Trump has also threatened sanctions on countries continuing to trade with Tehran. Iran has denounced the planned US measures, urging for a diplomatic resolution instead.

Brent crude prices, currently holding above $92 a barrel, have heightened concerns for major oil importers like India. Higher crude prices could lead to inflation, widen the current account deficit, and put pressure on government finances. The minutes from the Reserve Bank of India's August policy meeting, released last week, showed that policymakers are open to raising interest rates if inflationary pressures emerge and become more widespread.

Governor Sanjay Malhotra stated that signs of such spillovers could justify policy tightening, while Deputy Governor Poonam Gupta suggested the case for a rate hike might develop later this year.