India bonds poised to gain as oil slips; US midterms in focus

MUMBAI: Indian government bonds are likely to open firmer on Monday, as a retreat in crude prices eases inflation and rate-hike concerns, though traders await cues from the US midterm elections on the trajectory of the US-Iran war.

The benchmark 6.94% 2036 bond yield is seen trading in a 7.35%-7.39% range, a private-bank trader said, after ending at 7.4139% on Friday.

The 10-year yield fell about 6 basis points last week, following a more than 70-bps surge over the preceding 10 weeks, its longest such streak since at least 1998, the earliest available LSEG data shows.

Brent crude futures retreated from six-month highs to around $111 a barrel in Asian trade after Iranian and Qatari officials held a third consecutive day of talks aimed at securing a deal to end the conflict.

The negotiations come amid concerns the war could flare up again after the November 3 US midterm elections.

President Donald Trump has said the United States will not launch fresh attacks on Iran before the vote and described talks with Tehran as productive, while stopping short of ruling out military action afterward.

Opinion polls indicate Democrats could regain control of the House of Representatives and possibly the Senate, as voter discontent grows over inflation stoked by Trump’s tariffs and the war.

“Lower oil prices could extend short-covering in bonds, but a durable rally is unlikely until the midterm elections offer greater clarity on the war and its implications for oil,” the private-bank trader said.  

Liquidity also in focus

Tight banking system liquidity may cap demand for debt. It was near neutral at 304 billion rupees on Thursday.

“India rates remain under pressure from a sharp tightening in domestic liquidity conditions, increasingly amplified by the RBI’s efforts to manage INR volatility,” DBS Bank said in a note.