India bonds slide as US Treasury rout, supply weigh

Indian government bonds sank in a volatile trade on Thursday, pressured by surging US Treasury yields and heavy supply ahead of the central bank's policy decision next week.

The US benchmark scaled 4 basis points and was last at 5.34%, its highest since 2002, while Brent crude futures climbed back up above $100 adding to the pressure.

The benchmark 6.94% 2036 bond yield rose 3 bps to 7.2141% by 1: 00 p.m. IST, hovering at a two-and-a-half-year high and on track for its worst week in seven. The debt market will be shut Friday for a local holiday.

Bonds Corner Powered By India bonds slide as US Treasury rout, supply weigh

Indian government bonds experienced a decline as US Treasury yields rose and supply increased ahead of the Reserve Bank of India meeting. The benchmark bond yield reached its highest level in two and a half years. Market analysts expect the RBI to raise interest rates for the first time since 2023. Additionally, bond market activity was affected by global economic conditions and expectations of further rate hikes.

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Globally bonds closed out their worst month in years on Wednesday, with the benchmark 10-year US Treasury posting its biggest monthly increase since 2022 and the market's worst quarter of the century.

Traders have scrambled to reverse expectations for US interest rate cuts this year. After a hike last month, they now expect at least three more Federal Reserve hikes before the middle of 2027.

The Reserve Bank of India is widely expected to raise rates on Wednesday for the first time since 2023 as inflation rises, growth remains strong and global monetary policy tightens.

Barclays and BofA Global Research have advanced their first hike calls to October from December, while 60% of economists in a Reuters poll expect a 25-basis-point increase.

"Fading expectations of Fed easing complicate the RBI outlook. Any policy dovishness or delay in hiking could trigger a further selloff," a private-bank trader said.

New Delhi sold 330 billion rupees of bonds earlier in the day, adding supply pressure.

RATES

India's overnight indexed swaps marched higher as global headwinds compounded rate hike fears.

The one-year overnight indexed swap rate rose 4.75 bps to 6.2550%, two-year rate jumped 5 bps to 6.4550% while the 5-year added 5.25 bps to 6.7%.
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