India bonds seen steady; upside bias after dovish RBI policy

MUMBAI: Indian government bonds are likely to open little changed on Thursday, with a bias towards a rise later in the session, as oil prices and Treasury yields stay lower, while a more-than-expected dovish central bank policy supports bond bulls.

The benchmark Indian 6.94% 2036 bond yield is expected to trend in the 6.75% to 6.80% range, according to a trader at a private bank, after closing at 6.7722% on Wednesday.

Bond yields move inversely to prices.

“There is optimism among traders, as crude prices have crashed, and the policy tilt was definitely towards the dovish side. Looking at the governor’s tone, it seems the bar for rate hikes is quite higher,” the trader said.

The Reserve Bank of India held the repo rate as expected, as policymakers awaited clearer evidence on whether higher oil prices from the US-Iran war were feeding into broader inflation pressures.

The central bank cut its forecast for average inflation in the current financial year to 5% from 5.1%.

The forecast for core inflation, which excludes food and fuel, was cut more steeply to 4.3% from 4.7% earlier.

“From a market perspective, the 10-year bond yield is expected to remain range-bound, and the yield curve will remain steep,” said Churchil Bhatt, senior executive vice president-investment, Kotak Life Insurance.

Brent crude stayed below $80 per barrel after tumbling an aggregate of 12% in the last three sessions on hopes of a diplomatic resolution to the US-Iran war.

India is a large importer of crude, and lower prices improve the inflation outlook, as well as the current account deficit.

The 10-year US yield stayed around 4.60% mark ahead of crucial jobs data on Friday.