India bonds set for yet another selloff as Treasury rout deepens

Indian government bonds are poised for a steep drop when trading opens on Friday, according to Business Recorder, as US Treasury yields climb further. Traders expect the yield on the 6.94% 2036 bond to move between 7.10% and 7.15% before a government auction, after closing Thursday at 7.1067%. A primary dealership trader warned that the session could be very harsh for bulls and that their confidence would face a test.

New Delhi intends to raise 340 billion rupees, equal to about $3.54 billion, through a benchmark debt sale later in the day. The selloff is being fed by Federal Reserve officials, who backed further rate increases, pushing US Treasury yields to fresh highs. The 10-year yield reached its loftiest point in almost two decades, while the 30-year yield hit its highest since 2004.

Traders now price in a 67% chance of another increase in October and a 57% likelihood of a similar move in December, based on the CME Group FedWatch Tool. Brent crude hovered near $105 a barrel as markets weighed a possible US-Iran truce, and India, where about 90% of crude needs are imported, is vulnerable to oil swings. Last week the Federal Reserve raised rates, its first hike since 2023, to fight inflation, while August retail inflation in India reached 4.82%.