Indian bonds seen declining as Fed hike could pressure RBI to mirror move

Indian government bonds are set to fall on Thursday after the US Federal Reserve raised rates, its first increase since July 2023, according to Business Recorder. The move could pressure the Reserve Bank of India to mirror it as the central bank deals with rising inflation. A primary dealership trader said the benchmark 6.94% 2036 yield, which closed lower at 7.0524% on Wednesday, is seen moving within a 7.05% to 7.10% band.

American Treasury yields finished Wednesday higher, the 10-year sitting above 5% and the two-year around 4.75%. The Fed's decision was unanimous, and its projections show 16 of 18 policymakers foreseeing at least one further quarter-point increase before the year ends. Chair Kevin Warsh submitted no rate projection, while CME FedWatch data put market bets on a late October hike at roughly 50%.

Back home, the RBI intends to sell bonds totalling 1 trillion rupees ($10.42 billion) over the fortnight, with 500 billion rupees scheduled for Thursday. Analysts have strengthened wagers on an October increase as annual CPI inflation climbed to 4.82% in August, up from 4.45% in July. Citi and Deutsche Bank now expect the increase in October, having moved their forecast earlier.