India bonds may edge up as oil remains steady despite US sanctions on Iran

Indian government bonds may rise in early trading on Tuesday following a dip the previous day, as oil prices continue to stay stable despite additional US sanctions on Iran. The yield of the benchmark 6.94% 2036 bond is anticipated to trade between 6.84% and 6.87%, according to a trader at a private bank. It closed at 6.8708% on Monday.

A recovery in bonds could be possible as oil prices have not risen after the sanctions, but overall, the benchmark yield is expected to stay near the 6.85% mark, the trader noted. US Treasury Secretary Scott Bessent on Monday announced a broadening of sanctions to sever Iran's economic ties, aiming to end the ongoing war. He cautioned countries against maintaining business relations with Tehran to avoid losing access to the dollar-based financial system, though he did not specify the targeted nations.

Analysts believe that the US' focus on economic factors suggests a low likelihood of an immediate threat to oil supplies from the Middle East. The benchmark Brent crude was trading around $92 a barrel. Higher oil prices pose challenges for major energy importers like India, where increased costs could contribute to inflation and strain current account and government finances.

The Reserve Bank of India's August monetary policy minutes indicated that policymakers were receptive to raising interest rates if inflation issues emerged and intensified. Governor Sanjay Malhotra suggested that evidence of such spillovers might warrant "policy tightening," while Deputy Governor Poonam Gupta indicated a possible hike this year.

Traders also anticipate a fresh supply of the benchmark bond, which is scheduled for release on Friday. The Indian debt market is closed on Wednesday for a local holiday.