Indian bonds take a breather before RBI policy outcome

Traders kept their distance from Indian government bonds on Monday, awaiting the Reserve Bank of India's decision scheduled for Wednesday, Business Recorder reported. The benchmark 6.94% 2036 bond yield stood at 7.2127% at 10:25 a.m. IST, almost unchanged from Thursday's close. A local holiday closed the debt market on Friday.

Traders see the central bank's verdict as the immediate trigger, with markets already anticipating a first rate increase since 2023. Global yields have surged, Brent crude is trading above $100, and major central banks are tightening policy. Since hostilities involving the US, Israel and Iran broke out seven months ago, the Federal Reserve and Bank of Japan have both tightened.

Longer-dated American yields retreated, bringing the 10-year Treasury rate down to 5.26% after it touched a 24-year peak on Thursday. Weaker-than-forecast US employment data on Friday has raised expectations that the Fed could hold rates steady this month. Indian states intend to borrow 3.61 trillion rupees ($37.48 billion) through bonds from October to December, more than the market had expected. Umesh Tulsyan of Sovereign Global Markets said heavy issuance across longer maturities is likely to keep term premiums under pressure, and the RBI could also step up open market sales to drain surplus liquidity, adding to the glut of supply.