Fresh supply to further pinch already weak sentiment for Indian bonds

Indian government bonds are expected to extend their recent decline in early trade on Friday, Business Recorder reported, with the auction and its cutoff yield in focus. A private bank trader expects the 6.94% 2036 bond to trade between 6.87% and 6.90% before the sale, after it closed at 6.8901% in the previous session, its highest since June 12. New Delhi plans to raise 340 billion rupees ($3.56 billion) through the 2036 paper, lifting outstanding issuance to 1.8 trillion rupees.

The trader said caution should be visible in today's auction demand, and warned that a cutoff above 6.90% could push yields toward 7%. Separately, Brent crude closed higher on Thursday, snapping a three-day losing streak, after a Wall Street Journal report that US President Donald Trump was not keen to return to terms of a June memorandum of understanding with Iran. Prices were near $90 a barrel, and it remained unclear when flows through the Strait of Hormuz would normalise.

Elevated oil prices weigh on major energy importers such as India, since costlier crude can fuel inflation and strain the current account and public finances. Last week, minutes of the August monetary policy showed officials were willing to raise rates if inflation risks emerged. Market participants also expect the central bank to drain surplus banking liquidity using more durable instruments.