Indian bonds hold steady as US yields climb and oil eases ahead of inflation data

what happened

Indian government bonds moved within a narrow band early Thursday, Reuters reported. Cheaper oil balanced out a rise in US Treasury yields, while investors waited for domestic inflation figures and upcoming debt supply. The benchmark 6.94% 2036 bond yielded 7.2183% at 10:30 a.m. IST, barely changed after its sharpest one-day drop in a month the previous day.

A Reuters poll expects October annual inflation at 5.93%, compared with 5.54% in September. The RBI lifted rates in October for the first time in almost four years and is widely expected to add 25 basis points in December. If inflation comes in hotter than forecast, traders could start pricing a 50 basis point hike next month. Oil has fallen from $117 a barrel before the US midterms to $91, easing pressure on India, which depends heavily on imported crude. A trader at a private bank said the RBI may not need to tighten as aggressively as feared a few weeks ago.

The 10-year US Treasury yield came close to 5% after October US inflation beat forecasts, boosting bets on a larger Federal Reserve hike in December. Overnight index swaps were quiet, and the 5-year OIS rate eased slightly to 6.48%. Friday's auction of 340 billion rupees of 10-year debt will show how much demand there is.

why it matters

The picture for Indian debt is mixed: cheaper oil lowers the risk of tougher RBI action, but higher US yields and a strong inflation reading could push domestic yields up again. Friday's auction will help determine which factor wins out.

market impact

Indian bonds: cheaper oil eases inflation worries, while higher US yields and RBI hike bets cap gains

• ↔Indian government bonds mixed — cheaper oil helps, but higher US yields and rate-hike bets weigh on prices

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