India bonds to edge up on steady US yields, oil prices

MUMBAI: Indian government bonds may firm modestly on Wednesday, buoyed by steadier US Treasury yields and oil prices, while investors look for cues on the Reserve Bank of India’s rate trajectory as US rate hike expectations ease.

The benchmark 6.94% 2036 bond yield may trade in the 7.14% to 7.18% range after ending at 7.1628% on Tuesday, a private bank trader said, adding that a sustained break below the key 7.15% level could unleash some buying.

The 10-year yield was headed for its biggest monthly rise of the financial year, as oil prices sustained above $100 a barrel, US yields scaled multi-decade highs and RBI rate hike bets hardened.

“Some analysts expect the RBI to raise rates by as much as 100 basis points in 12 months, as elevated global yields and oil prices holding above $100 have dispelled expectations of a shallow tightening cycle,” a trader at a primary dealership said.

Traders are bracing for a potential rate hike by the RBI next week, its first since February 2023.

Markets may draw relief from a slight dip in oil prices, with Brent futures trading at $103 a barrel, after easing 2.5% in the previous session.

Brent is still set for a monthly gain of around 14%, its biggest climb since July.

The 10-year US Treasury yield was down 2.5 bps at 5.23% in Asian hours, inching lower after gaining 27 basis points in six sessions. New York Fed President John Williams said the Federal Reserve policymakers probably only need to deliver one more rate hike this year.

Markets have scaled back Fed rate hike bets, with futures pricing in a 53% chance of no change in rate by the Fed in the October-end policy meeting, the CME FedWatch Tool showed.