India bonds may steady after rout, but US yield, supply risks persist

Business Recorder reported that Indian government bonds may steady early Tuesday after a heavy sell-off pushed the benchmark yield above a two-year high. Traders expect the 6.94% 2036 bond to trade between 7.15% and 7.20%, after it closed at 7.1848% on Monday. Elevated US yields, costly oil and a heavier debt supply calendar are nonetheless expected to keep investors cautious.

US Treasury yields retreated in Asian trading from multi-year highs reached overnight, with markets bracing for a firmer Federal Reserve policy path. The 10-year yield had touched its loftiest level since June 2007 before easing back to 5.23%. Brent crude rose 1.3% to $106.65 a barrel, adding to inflation concerns, while US and Iranian officials held separate talks with mediators over the war.

Traders said costlier oil has tilted the debate toward a rate increase by the Reserve Bank of India at its policy meeting next week. Supply is another worry, as the government's plan for borrowing from October through March moves issuance toward 15-year and ultra-long bonds, where demand is weaker. Traders also fear that central bank bond sales to absorb surplus liquidity could add to the overhang, while states plan to sell 222 billion rupees of debt later today.