India bonds may open steady after relief rally from near 7.50% levels

MUMBAI: Indian government bonds could open on a flattish note on Wednesday, after witnessing aggressive buying towards the end of the previous session, while the major focus would remain on the US Federal Reserve’s monetary policy decision.

The 6.94% 2036 bond yield may trade between 7.42% and 7.48%, according to a trader at a primary dealership, after closing at 7.4360% in the previous session.

The 10-year bond yield eased four basis points on Tuesday, its biggest single day decline in three months, after failing to breach 7.50%.

“Since the 10-year bond yield was heavily guarded at around 7.50%, and was not able to break that level despite multiple attempts, there was a sharp reversal in trend in the last few minutes of the session,” the trader said.

The Federal Reserve’s monetary policy decision is due after Indian market hours, and even as a rate pause is largely factored in, traders willtake stock of guidance on tge interest rate trajectory.

Meanwhile, oil prices were steady, with the benchmark Brent crude contract trading around $115 per barrel in Asian hours, near a six-month high due to the disruption of shipping from the Middle East.

India is particularly vulnerable to elevated energy prices as it imports nearly 90% of its crude needs.

Consistently elevated prices risk feeding into the nation’s inflation trajectory, impacting the rupee and government finances.

The Reserve Bank of India raised the repo rate and shifted its stance earlier this month, hinting at more hikes, while markets are now pricing in almost 125 bps of hikes in the next 12 months, according to overnight indexed swaps.