India bonds may steady after rout, but US yield, supply risks persist
MUMBAI: Indian bonds are likely to find a wary foothold early on Tuesday after a punishing rout drove the benchmark yield to a more than two-year high, though elevated US yields, sticky oil prices and supply are likely to keep the market on edge. The yield on the benchmark 6.94% 2036 bond may trade in a 7.15% to 7.20% band, traders said, after ending at 7.1848% on Monday. US Treasury yields eased…
Indian bonds may stabilize after a sharp decline, but US yield and supply risks remain a concern, according to market observers. The benchmark 6.94% 2036 bond yield surged past the two-year high, trading at 7.1848% on Monday, and may now trade between 7.15% and 7.20% on Tuesday. US Treasury yields have eased slightly following their multi-year peaks, with the 10-year yield touching its highest level since June 2007 before pulling back to 5.23%.
Meanwhile, Brent crude futures rose by 1.3% to $106.65 a barrel, heightening inflation worries. Traders are watching for developments in the Middle East conflict, as US and Iranian officials engaged in separate talks with mediators to resolve the situation. The Reserve Bank of India is expected to raise interest rates at next week's meeting, given the costlier oil, leaving limited room for a significant recovery in the bond market.
The government's bond issuance plan for October to March has added to the market uncertainty by allocating more funds to the 15-year and ultra-long tenors, where demand is weaker. The 15-year and 30-year tenors now make up 26.8% of the planned supply, up from 21.8% previously. DBS Bank noted that tighter supplies could boost bond markets, but elevated US yields make it unlikely for the 10-year rate to fall below 7% in the near term.
The central bank has net sold bonds worth 1 trillion rupees this financial year, the largest annual net sale in over a decade. Later today, states will auction 222 billion rupees of bonds, possibly at lower prices.
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