Indian bond yields may steady after a rebound from the 7.50% area

what happened

According to Reuters, Indian government bonds may open little changed on Wednesday. On Tuesday, the market bought heavily toward the close, and the 10-year yield fell four basis points, its largest one-day drop in three months. The yield could not break above 7.50% despite several attempts. A trader at a primary dealership expects the 6.94% 2036 bond to trade between 7.42% and 7.48%, after it closed the previous session at 7.4360%.

Attention now shifts to the Federal Reserve policy decision, due after the Indian market closes. A pause is largely priced in, so traders will focus on guidance about the path of interest rates. Overnight index swap rates may also move only within a narrow range: the one-year rate ended at 6.64%, the two-year fell 2 bps to 6.6750%, and the five-year settled 2 bps lower at 6.8150%.

why it matters

Brent crude traded near $115 a barrel, close to a six-month high, because shipping from the Middle East has been disrupted. India imports close to 90% of its crude, so persistently high prices could push up inflation and weigh on the rupee and public finances. The Reserve Bank of India recently raised its repo rate and hinted at more hikes, while swap markets price in roughly 125 bps of tightening over 12 months. That keeps Indian bonds sensitive to Fed signals and oil prices.

market impact

Indian bonds and the rupee: expensive oil and tightening expectations pressure yields and the currency

tags

instruments