India bonds gain as oil, Treasuries decline; debt auction remains key

According to Business Recorder, Indian government bonds firmed in early Friday trading as dealers unwound short bets after oil and US Treasury yields softened. Yield on the 6.94% 2036 benchmark stood at 7.2667% at 10:10 a.m. IST, versus 7.2868% at Thursday's close. Gains were held back, though, before a weekly auction in which the government plans to borrow 360 billion rupees ($3.72 billion).

Brent crude slipped from recent peaks after US President Donald Trump said Washington was in productive talks with Iran, but was still on track for a weekly gain after rising 4% on Thursday amid more vessel attacks. The renewed risk premium highlights how exposed energy importers such as India are, as sustained high crude would enlarge the import bill and weigh on the current account and rupee. A longer-lasting oil shock could also push overall price growth above what retail fuel adjustments alone would cause.

Against this backdrop, the Reserve Bank of India lifted its policy repo rate 25 basis points to 5.50% on Wednesday and switched to a calibrated tightening stance, which signals readiness for further hikes. Most economists see the terminal repo rate at 6.00% or higher, while Standard Chartered puts it at 6.25%. Yes Bank said in a note that the next 25 basis point increase is expected in December, with cumulative hikes of 75 to 100 basis points.