India bonds slip as traders wait for hawkish central bank action

According to Business Recorder, Indian government bonds declined in early trading on Tuesday as investors prepared for a tougher monetary stance from the central bank, with traders worried about further policy steps. The benchmark 6.94% 2036 bond yield rose to 7.2213% by 10:10 a.m. IST from 7.2108% at Monday's close. Yields have climbed for seven straight weeks, adding 45 basis points in total, the longest such run in more than a year.

A Reuters poll found close to 60% of economists see the RBI lifting its main policy rate by a quarter point. Traders said the bond market reaction would depend more on the central bank's outlook for the pace of tightening, inflation risks and growth durability. DBS expects a repo rate hike, and a stance change in October or December would add to the hawkish signal.

Market positioning suggests much of the expected tightening is already priced into bonds. Investors will watch for steps to soak up surplus banking liquidity, such as a higher cash reserve ratio or more debt sales. In September the central bank unloaded 1 trillion rupees ($10.4 billion) of debt, its biggest sale in any financial year for over a decade.