India bonds may waver as traders gauge debt supply before RBI verdict
The benchmark 6.94% 2036 bond yield may trade in a 7.20%-7.26% band
India's government bonds may face uncertainty ahead of the Reserve Bank of India's policy decision, as traders assess the market's reaction to the country's substantial state borrowing plan. The 6.94 percent 2036 bond yield could trade within a 7.20 percent-7.26 percent range, according to a private-bank trader. This yield reached a two-and-a-half-year high of 7.2133 percent on Thursday after gaining nearly 10 basis points last week. Markets were closed for a local holiday on Friday.
Investors have anticipated that the RBI may raise interest rates this week, with 60 percent of economists in a Reuters poll expecting a 25-basis-point increase, the central bank's first hike since 2023. Maulik Patel, head of research at Equirus Securities, noted that the rise in input prices is already affecting retail prices, and that the RBI is grappling with a liquidity surplus, high global rates, and a low real rate. This combination of factors is compelling the central bank to act, Patel added.
The RBI's rate decision is further complicated by shifting expectations for US policy. Fed policymakers have indicated a reluctance to raise rates again this month, and a weaker-than-expected US jobs report on Friday has reinforced the view that the Federal Reserve may pause for now. The US 10-year yield dipped slightly to 5.2558 percent in Asian trade, providing some relief, while Brent crude oil held steady around $101 per barrel.
The flow of state borrowing could pose the most significant challenge to longer-dated bonds, particularly as New Delhi has increased long-end issuance in its second-half borrowing program. Recent RBI open-market sales—among the largest in a decade—have added to the supply, as the central bank seeks to absorb excess cash from the banking system.
Overnight indexed swaps may remain within a narrow range before the next policy announcement. The one-year OIS was at 6.2650 percent on Thursday, the two-year at 6.48 percent, and the five-year at 6.73 percent.
Written by urgent.news from Hindu BusinessLine's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
