Indian bonds track US Treasuries higher amid oil-price relief

The benchmark 6.94% 2036 bond yield was down 3 basis points at 7.4091% by noon. Bond yields move inversely to prices.

The yield slipped below the key 7.40% technical level in early trade before retracing, as investors stayed cautious before New Delhi's 330 billion rupee($3.47 billion) bond sale on Friday. The rupee weakened 0.15% to 95.36 per dollar, reviving inflation and rate-hike concerns.

Indian government bonds increased on Thursday due to support from a rally in Treasuries and lower oil prices. However, the upcoming large bond sale and a weak rupee limited the extent of the gains observed. The benchmark 6.94% 2036 bond yield fell slightly below the significant 7.40% level during early trading hours. Meanwhile, the Reserve Bank of India previously raised the repo rate amid ongoing inflation concerns.

Relief came from a sharp decline in the 10-year US Treasury yield, a key gauge for global borrowing costs, which fell 5 basis points to 4.99% in Asian trade. Brent crude slipped 1% to $114 a barrel, as peace-talk hopes eased supply-disruption concerns.

The Federal Reserve kept rates unchanged late Wednesday, as widely expected, while signalling that inflation remained elevated, keeping expectations of a December rate hike intact.

Fed Chair Kevin Warsh said September's hike had begun tightening financial and credit conditions, but stopped short of describing overall financial conditions as tight, Emkay Global Financial Services said in a note.

"This reinforces the RBI's reaction function, making the case for measured hikes ahead. Elevated US rates, high oil prices and weak natural dollar inflows argue for a higher Indian risk premium, limiting the RBI's ability to look through global tightening," it said.

The Reserve Bank of India raised the repo rate and tightened its policy stance earlier this month.

So far this week, the 10-year yield has swung between 7.41% and 7.49%, with traders covering positions as when it failed to surpass 7.5%.

Rates

The one-year OIS was up slightly at 6.6850%. The two-year OIS was flat at 6.74%, while the five-year fell 1 bp to 6.8675%.