India bonds may edge up as oil remains steady despite US sanctions on Iran

Indian government bonds were expected to edge higher in early trading on Tuesday, Business Recorder reported, after a steep fall in the previous session. Crude held firm even though US Treasury Secretary Scott Bessent announced on Monday wider sanctions aimed at cutting off Tehran's economic lifeline. A private bank trader expected the 2036 benchmark yield, which closed at 6.8708% on Monday, to trade between 6.84% and 6.87%.

The trader said a modest bond recovery was possible because oil had not risen after the sanctions, though the benchmark yield should stay near 6.85%. Analysts said that since Washington is concentrating on economic measures, an immediate threat to Middle Eastern oil supplies is highly unlikely. Brent crude traded near $92 a barrel, and high energy prices can fuel inflation and strain India's current account and government finances.

Minutes of the Reserve Bank of India's August policy meeting, released last week, showed policymakers were willing to lift rates if inflation risks spread. Governor Sanjay Malhotra said such spillovers could justify policy tightening, while Deputy Governor Poonam Gupta said a rate hike case may emerge this year. Trading in the Indian debt market will pause Wednesday because of a local holiday, and traders also prepared for new issuance scheduled for Friday.