India bonds pause rally as large debt supply, Fed decision loom

MUMBAI: Indian government bonds ended flat on Tuesday after the previous session’s sharp rally, as a hefty supply of 10-year notes later this week and the looming Federal Reserve policy decision kept risk appetite in check. The benchmark 6. 94% 2036 bond yield erased its early fall to end at 6. 7774%. It settled at 6. 7739% on Monday. Bond yields move inversely to prices. Sentiment was initially buoyed by 2% decline in Brent crude to $86. 65 a barrel and the 10-year U. S. Treasury yield’s more than 2-basis-point fall in the Asian trade. Traders turned cautious ahead of the Fed’s rate decision due late Wednesday, where it is expected to hold rates. However, money markets are pricing a high probability of a 25-bp hike in September. “More than the outcome, people will watch the statement for cues on the future course of rate hikes, ” said Alok Singh, head of treasury at CSB Bank. Singh said 6. 74% is a key resistance level for the Indian 10-year yield and could break if oil prices decline further. Geopolitical uncertainty persisted after Oman won Gulf backing for a plan allowing Tehran to collect voluntary fees for the use of the Strait of Hormuz, a Gulf source told Reuters. U. S. President Donald Trump said “good talks” were under way with Iran, while Tehran denied resuming negotiations with Washington. A 340-billion-rupee sale of 10-year paper on Friday also kept traders on the sideline. State-run banks likely continued selling bonds on Tuesday after offloading 33. 7 billion rupees ($351. 58 million) on Monday to book profits, traders said. Rates India’s overnight index swaps eased, tracking lower oil prices and U. S. Treasury yields, while traders awaited the Fed’s guidance. The one-year swap rate eased slightly to 5. 8825%, while both the two-year rate and the five-year rate fell nearly 1 bp to 6. 0650% and 6. 35%, respectively.

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