Indian Bonds Pause Ahead of RBI Policy Decision
Indian government bonds remained stable early Monday as traders adopted a cautious stance ahead of the Reserve Bank of India's upcoming policy decision. The benchmark 6.94% 2036 bond yield stood at 7.2127% as of 10:25 a.m. IST, showing little change from Thursday's close. The market was closed on Friday due to a local holiday.
The RBI's policy decision on Wednesday is the key focus, with markets anticipating the central bank's first rate hike since 2023. This expectation comes amid rising global yields, Brent crude prices above $100, and tightening policies by major central banks. The US Federal Reserve and Bank of Japan are among those that have raised rates since the US-Israeli war on Iran began seven months ago.
A slight pullback in US Treasury yields provided some relief. The 10-year Treasury yield eased to 5.26% after reaching a 24-year high on Thursday. A softer-than-expected US jobs report on Friday has increased speculation that the Fed may pause its rate hikes this month. The Fed minutes, due Wednesday, could offer more clarity on the US rate path.
Supply remains a significant concern for the Indian market. States plan to raise 3.61 trillion rupees ($37.48 billion) through bonds in the October-December period, exceeding market estimates. Umesh Tulsyan, managing director at Sovereign Global Markets in New Delhi, noted that the heavy supply of 10-30 year state development loans (SDLs) and elevated long-end government bond issuance will likely keep the term premium under pressure.