India Bonds Tread Cautiously Ahead of Fed Rate Decision

India's government bonds traded range-bound on Wednesday as investors grew cautious ahead of the Federal Reserve's rate decision. The benchmark 6.94% 2036 bond yield was at 6.7872%, up from Tuesday's close of 6.7774%. Bond yields move inversely to prices.

The Fed's decision is due post-market hours, with traders assigning a 65% probability to rates being held steady and fully pricing in a 25-basis-point hike in September. The 10-year Treasury yield also rose to 4.61%. Indian bond traders are watching for guidance on the Fed's rate path for the rest of the year, as higher U.S. rates may influence domestic rates.

India's financial conditions have tightened recently, returning to levels seen at the June MPC meeting, due to a re-escalation in Middle East fighting and a surge in oil prices. Brent crude rose 4.7% in Asian trade to $87.68 a barrel after U.S. and Saudi forces launched strikes on Iran-backed groups in Iraq.