India bonds little changed; traders track oil moves in run-up to RBI decision

MUMBAI: Indian government bonds were stuck in a narrow range early on Wednesday, with support from lower oil prices offset by selling pressure as the benchmark 10-year yield hovered around 7%.

The benchmark 6.94% 2036 bond yield was at 7.0052%, as of 10:15 a.m. IST, after ending at 7.0106% on Tuesday.

The yield has declined six basis points after closing at 7.0686% on Friday.

The 10-year Indian bond yield has risen about 6 bps so far this month, compared with a 20-bp jump in the US Treasury yield of the same maturity.

It is interesting to note that Indian bonds have outperformed US Treasuries during the recent global selloff, said Rong Ren Goh, fixed income portfolio manager at Eastspring Investments.

“IGBs are notably low beta in spite of the purported vulnerabilities to higher oil prices… India offers a unique value proposition from a fixed income perspective,” Goh told the Reuters Global Markets Forum on Wednesday.

He said Indian bonds offer relatively higher absolute yields and, given the sharper selloff in other markets recently, have delivered impressive volatility-adjusted returns.

Oil prices fell on Tuesday for a sixth straight session, with the restart of the East-West pipeline and ship movements through the Strait of Hormuz.

Brent crude has declined nearly 10% to $98 per barrel after climbing to around $110 last week.

India, which imports roughly 90% of its crude oil needs, is particularly vulnerable to swings in global oil prices.

Elevated oil prices and a weak monsoon have raised inflation concerns and firmed expectations of an interest rate hike at the Reserve Bank of India’s October 7 policy meeting.

Expectations of monetary tightening have firmed following higher-than-expected August inflation and the Federal Reserve’s recent policy decision, with a majority of market participants now leaning towards an RBI repo rate hike.