India bonds seen under strain before Fed decision as oil, global yields rise

Indian government bonds could edge lower on Wednesday, with costlier crude and rising global yields dampening demand in advance of the US Federal Reserve's monetary decision, according to Business Recorder. A private-bank trader expects the benchmark 6.94% 2036 yield to hover in a 7.05% to 7.12% band, after closing Tuesday at 7.0727%, a four-month peak. Market participants are also uneasy about the Reserve Bank of India's open market sale programme of 1 trillion rupees ($10.42 billion) across three tranches starting Thursday.

Brent crude prices advanced 3.5%, hitting $108 a barrel during Asian hours as fighting expanded across the Middle East. US Treasury yields dipped slightly after probing multi-decade peaks; the 10-year yield had briefly moved above 5% on Tuesday, its loftiest reading since the 2008 global financial crisis. The Group of Seven average for 10-year yields stood at 4.285%, its strongest point since mid-2008.

Expectations for an October RBI increase strengthened after annual CPI inflation reached 4.82% in August, up from 4.45% in July. Deutsche Bank has also advanced its call for a rate increase to October, linking the change to a possible Fed tightening path.