India bonds pause before RBI policy, debt supply

MUMBAI: Indian government bonds were little changed early Tuesday as investors awaited the Reserve Bank of India’s policy decision, with a hefty state debt supply set to test market appetite.

The benchmark 6.94% 2036 bond yield was flat at 6.8346% as of 10:30 a.m. IST.

Indian states will auction 268.50 billion rupees ($2.82 billion) of bonds later in the day.

The RBI is widely expected to leave its key policy rate unchanged on Wednesday, according to a Reuters poll.

“The August policy will take place against continued uncertainty over the West Asia crisis and the monsoon outlook,” IDFC Bank said in a note.

Even so, uncertainty around inflation and growth has eased, with headline CPI inflation for fiscal 2027 running below the bank’s forecast and the RBI’s 5.1% estimate, while risks to the central bank’s 6.6% growth projection are tilted to the upside, the note said.

Oil prices, a key driver for oil-import-dependent India, fell 7% in the previous session but edged higher in Asian trade to $84.8 per barrel, keeping traders on edge.

Indian bonds have faced pressure in recent weeks as the widening US-Iran war lifted crude prices and US Treasury yields, reducing the appeal of emerging-market debt.

Foreign investors, strong buyers over the past two months, turned net sellers late last month and offloaded more than 34 billion rupees of bonds last week.

The outlook for fresh foreign inflows darkened further after Bloomberg Index Services again deferred India’s inclusion in its flagship bond index.

Some support, however, has come from inflows into the Reserve Bank of India’s June foreign-currency deposit scheme for non-resident Indians, which has attracted $36.7 billion so far.