India bonds poised to gain as oil slips; US midterms in focus
The benchmark 6.94% 2036 bond yield is seen trading in a 7.35%-7.39% range
Indian government bonds are expected to open higher on Monday, as falling crude prices alleviate inflation concerns and rate hike worries, according to traders. However, the outcome of the US midterm elections remains a key factor in determining the trajectory of US-Iran relations and the potential for further conflict, which could impact oil prices.
The benchmark 6.94 percent 2036 bond yield is anticipated to trade within a range of 7.35 percent to 7.39 percent, following a dip to 7.4139 percent on Friday. The 10-year yield decreased by approximately 6 basis points last week, after surging by over 70 basis points over the previous 10 weeks. Brent crude futures experienced a decline from six-month highs to around $111 a barrel in Asian markets, following a series of talks between Iranian and Qatari officials to reach an agreement to end the conflict.
These negotiations come amid worries that the war could resume following the November 3 US midterm elections. President Donald Trump has stated that the United States will not initiate new attacks on Iran prior to the vote and has described the talks with Tehran as productive, although he has not ruled out military action afterward.
Polls suggest that Democrats may reclaim control of the House of Representatives and possibly the Senate, as voter dissatisfaction grows over inflation driven by Trump's tariffs and the ongoing war. Lower oil prices could contribute to increased short-covering in bonds, but a sustained rally is improbable until the midterm elections provide more clarity on the war's implications for oil.
The private-bank trader noted that tight liquidity in the banking system may limit demand for debt. India's bond market is currently near neutral, with a total value of around 304 billion rupees as of Thursday. Domestic liquidity conditions have been tightening, exacerbated by the Reserve Bank of India's efforts to manage INR volatility, according to DBS Bank in a recent note.
Overnight indexed swap rates are also expected to decrease. On Friday, one-year OIS rates ended at 6.72 percent, two-year at 6.74 percent, and five-year at 6.86 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.
