India bonds may firm with Treasuries; crude, supply could cap gains

MUMBAI: Indian government bonds may edge higher on Thursday, buoyed by firmer US Treasuries, though crude-price swings and looming debt supply may keep gains in check.

The US Federal Reserve left borrowing costs unchanged late on Wednesday, as widely expected, delaying any policy move ahead of next week’s US midterm elections while awaiting more data on inflation, which it said “remains elevated.”

The US 10-year Treasury yield, a key gauge for global borrowing costs, briefly moved up after the Fed decision, but was down 6 basis points at 4.98% in Asian trade.

The benchmark 6.94% 2036 bond yield may trade between 7.42% and 7.47%, according to a private-bank trader, after closing at 7.44% on Wednesday.

Bond yields move inversely to prices.

Bonds have whipsawed this week as elevated oil prices fuelled bets of further Reserve Bank of India rate hikes, although some value buying has emerged at higher yields.

The 10-year yield has approached but not breached the technically key 7.50% level, reinforcing expectations that yields may peak near current levels if oil stabilises.

“The market is still worried about the current level of crude,” a trader at an asset manager said. “If crude doesn’t ease, the rupee may depreciate further, and we could be looking at a 50-basis-point hike in December.”

The rupee was last at 95.22 per dollar, after touching 94.46 last week. The RBI raised the repo rate and shifted its policy stance earlier this month, signalling scope for further tightening.

Focus will also be on New Delhi’s 330 billion rupee ($3.47 billion) bond auction on Friday, which should offer fresh clues on investor demand and broader risk appetite.