Indian bonds steady as RBI rate hike expectations strengthen

Indian government bonds were little changed in early trade on Tuesday, Business Recorder reported, as market participants prepared for more liquidity withdrawal before next month's monetary policy decision. The yield on the 6.94% 2036 benchmark bond stood at 7.0516% at 10:30 a.m. IST, compared with 7.0497% at the prior session's close.

Oil prices slipped on Monday but Brent crude contracts inched up during Asian hours as investors tracked tensions between the US and Iran ahead of the UN gathering later this week. Iran and the US exchanged fresh threats on Sunday, which kept geopolitical risk premiums in crude prices even though President Trump signalled willingness to meet his Iranian counterpart. For India, which imports most of its energy, sustained high crude prices would raise the import bill, widen the current account deficit and complicate the inflation outlook.

Expectations of an RBI rate increase at its October 7 meeting have strengthened after August's retail inflation figure rose to 4.82%. The US Federal Reserve also raised rates by 25 basis points last week, its first increase since 2023, which adds to concerns that tight global monetary conditions could persist for longer. Liquidity has already tightened after bond sales worth 750 billion rupees ($7.83 billion) by the RBI, and a further 250 billion rupees in securities will be sold on Monday.