Indian bonds rise on short covering before Fed decision

Indian government bonds rose on Wednesday with traders squaring short positions as crude prices eased ahead of the Federal Reserve's policy decision.

Global debt markets steadied after oil prices retreated from recent highs on reports that Saudi Arabia was offering additional cargoes through Oman, easing supply concerns.

With the Fed widely expected to raise rates later on Wednesday, Chair Kevin Warsh's guidance will be in focus. The Indian central bank is also expected to tighten policy next month as inflation is rising.


"Markets have been pricing in a substantial amount of rate hikes from the RBI for some time now," Citi said in a note. India delaying a rate hike might lead to the need for more hikes in the future, affecting the rupee, Citi said.

The yield on India's benchmark 6.94% 2036 note fell 2 basis points to 7.0524% on Wednesday, snapping a four-session rise. Bond yields move inversely to prices.

One-year Treasury bill yields rose to their highest in more than a year.

Bonds have been falling as the central bank has been withdrawing banking system liquidity, including with open-market bond sales that will kick off on Thursday.

The sales will precede New Delhi's bond auction on Friday, adding to supply pressure.

RATES

India's OIS rates eased, tracking offshore markets.

The one-year rate fell 3.25 bps to 6.0650%, the two-year rate dropped 3.5 bps to 6.3%, and the five-year rate eased 4.5 bps to 6.62%.