India bonds seen extending losses before debt sale as US yields weigh

MUMBAI: India government bonds may weaken at the start of the third quarter on Thursday as elevated US Treasury yields cloud the rate outlook ahead of the Reserve Bank of India’s policy decision, while a looming debt sale adds supply pressure. Global bonds closed out their worst month in years on Wednesday, with the benchmark 10-year US Treasury posting its biggest monthly increase since 2022. The Indian benchmark 6. 94% 2036 bond yield may trade in a 7. 18%-7. 26% range, a private-bank trader said. It closed at 7. 1879% on Wednesday, a two-and-a-half-year high, after jumping 24 basis points in September and about 44 basis points over the quarter. The US benchmark scaled 7 basis points overnight and was perched at its highest since 2007 at 5. 30% in Asian trade. The Indian 10-year yield could pivot to 7. 20% at the open, traders said, while relief from lower oil prices may spur short-covering and cap the pickup. Brent crude futures eased 5. 6% in Asian trade to $97. 7/barrel, easing inflationary pressures for oil-import-dependent India. India’s debt market is shut on Friday for a local holiday. “We will avoid taking positions ahead of a long weekend which will be followed by RBI policy, ” a private bank trader said. “A weak auction or further rise in US yields, though, could push the benchmark toward 7. 25%. ” New Delhi will sell bonds worth 330 billion rupees later in the day. Traders are closely watching for cues on the RBI’s rate trajectory, with its decision due on October 7, as odds of a Federal Reserve rate hike next month eased after fresh government data showed inflation rose less than expected in August.

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