India bonds set for yet another selloff as Treasury rout deepens

MUMBAI: Indian government bonds will see a large gap-down opening on Friday, tracking a relentless spike in US Treasury yields while elevated oil prices and a large supply of domestic debt add further pressure. The benchmark 6. 94% 2036 bond yield is expected to trade between 7. 10% and 7. 15% till the debt auction, according to a trader with a primary dealership, after ending at 7. 1067% on Thursday. New Delhi is to sell benchmark paper worth 340 billion rupees ($3. 54 billion) later in the day. “It will be a blood bath today, and confidence of bulls would be tested, ” the trader said. US Treasury yields surged, deepening the debt’s recent rout, as comments from Federal Reserve officials about the need to deliver further rate hikes cemented bets of such a move in October-December. The 10-year Treasury yield moved to its highest level in nearly two decades, while the 30-year yield touched its highest level since 2004. Traders now see a 67% chance of another rate increase in October, and 57% probability that the move would be mirrored in December policy, according to CME Group’s FedWatch Tool. The Fed raised rates last week for the first time since 2023 to control inflation. Oil prices stayed elevated with the benchmark Brent crude contract around $105 per barrel, with the market’s focus on the possibility of a truce between the US and Iran. India, which imports roughly 90% of its crude oil needs, is particularly exposed to swings in global oil prices as elevated prices raise inflation concerns and expectations of a domestic rate increase. Rate hike bets have hardened after August retail inflation stood at 4. 82% and the Fed’s move, with a majority now expecting such a move on October 7.

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