Oil, US Treasuries prop up Indian bonds

The 6.94% 2036 bond yield eased 1 basis point from Friday's close to 7.4640% by 10:40 a.m. IST. Bond yields move inversely to prices.

The Indian debt market has swayed with oil after Brent crude hit a six-month high last week. The contract slid 2.14% to $114 per barrel in Asian trading, after gaining 6.2% last week, but continued attacks on Saudi Arabia kept supply risks in view.

Indian government bonds increased in early trading as oil prices declined, following a previous rally. The Brent crude price slipped significantly after hitting a six-month high last week, which impacted the debt market. Foreign investors have sold a substantial amount of Indian government debt since August, contributing to a prolonged rise in benchmark yields. Concerns over inflation and the Reserve Bank of India's rate decisions are influencing market sentiments.

"We are staying light," a private-bank trader said. "There's no use trying to catch a falling sword."

Elevated oil and rising global yields have dented sentiment in the world's third-largest oil importer, triggering foreign outflows.

Foreign investors have sold a net 153 billion rupees ($1.6 billion) of Indian government debt under the so-called fully accessible route, which allows unfettered purchase and sale, since August.

The benchmark yield has climbed for 10 consecutive weeks-the longest such streak since 1998.

Attention is now on India's inflation outlook and the Reserve Bank of India's rate path. Markets are pricing in more than 100 basis points of tightening over the next 12 months, traders said.

Globally, central banks that began tightening early are expected to adopt a hawkish pause before resuming rate hikes in December.

The Bank of Japan, Federal Reserve and European Central Bank are all seen raising rates by year-end as robust AI-driven demand and the Iran war's energy shock fuel global inflation.

The Fed announces its decision on Wednesday, when investors widely expect it to hold rates.

Rates

The 1-year OIS rate was flat at 6.5825%, while the 2-year rate eased slightly to 6.65% and the 5-year rate fell nearly 2 bps to 6.8050%.