India bonds little changed; traders track oil moves in run-up to RBI decision

Mumbai saw Indian government bonds trading within a narrow range on Wednesday, with support from falling oil prices and selling pressure ahead of the Reserve Bank of India's (RBI) October 7 policy decision. The benchmark 10-year yield hovered around 7%, with the 6.94% 2036 bond yield at 7.0052% at 10:15 a.m. IST, down by six basis points from Tuesday's 7.0106%.

The 10-year Indian bond yield has increased by about six basis points this month, compared to a 20-basis point rise in US Treasury yields of the same maturity. Rong Ren Goh, a fixed income portfolio manager at Eastspring Investments, noted that Indian bonds have outperformed US Treasuries during recent global sell-offs, attributing this to their "notably low beta" and relatively higher absolute yields.

Goh further explained that Indian bonds provide a unique value proposition from a fixed income perspective, given their resilience to higher oil prices.

Oil prices experienced a sixth consecutive decline on Tuesday, with Brent crude falling nearly 10% to $98 per barrel after peaking at around $110 last week. India relies on crude oil imports for approximately 90% of its needs, making it particularly sensitive to fluctuations in global oil prices. Elevated oil prices, coupled with a weak monsoon, have raised inflation concerns, prompting expectations of an interest rate hike by the RBI during its October 7 policy meeting.

Anticipation of monetary tightening has gained momentum following higher-than-expected August inflation and the Federal Reserve's recent policy decision, with most market participants now anticipating an RBI repo rate hike.