Indian bonds take a breather before RBI policy outcome

Indian government bonds held steady early Monday as traders stay sidelined ahead of the Reserve Bank of India's policy verdict this week, while softer US Treasury yields temper jitters from a hefty state borrowing programme.

The benchmark 6.94% 2036 bond yield was perched at 7.2127%, as of 10:25 a.m. IST, little changed from Thursday's close. The debt market was shut on Friday for a local holiday.

Wednesday's RBI decision is the immediate catalyst, traders said, with markets pricing in the central bank's first rate hike since 2023, amid surging global yields, Brent crude above $100, and policy tightening by major central banks.


The US Federal Reserve and Bank of Japan are among global central banks that have raised rates since the US-Israeli war on Iran began seven months ago.

On the day, a pullback in US yields offers some respite. The 10-year Treasury yield eased to 5.26% after briefly striking a 24-year high on Thursday.

A softer-than-expected US jobs report on Friday has strengthened bets that the Fed may pause this month. Fed minutes, due Wednesday, could shed further light on the US rate path.

Supply remains one of the Indian market's key overhangs.

States plans to raise 3.61 trillion rupees ($37.48 billion) through bonds in October-December, above market estimates.

"The heavy supply of 10-30 year SDLs, alongside elevated long-end government bond issuance, is likely to keep the term premium under pressure," said Umesh Tulsyan, managing director at Sovereign Global Markets, New Delhi.

The RBI may also announce further measures to draw out excess liquidity, including further open market sales, which could add to supply glut.

Rates

Overnight indexed swaps edged lower, tracking US yields. The one-year OIS was flat at 6.27%, while the two-year rate fell 2 basis points to 6.45% and the five-year slipped 1.75 bps to 6.7%.