Indian government bonds are likely to start the holiday-truncated week on a cautious note, with oil prices remaining elevated ahead of an expected US announcement on additional sanctions against Iran that could further disrupt supplies, as reported by The Hindu Business Line.
The yield on the benchmark 6.94 per cent 2036 bond is expected to trade between 6.83 per cent and 6.88 per cent on Monday, a trader at a private bank said, after closing at 6.8495 per cent on Friday and posting its biggest weekly rise of the financial year. Indian debt markets are shut on Wednesday for a local holiday.
"We are in for another week, which is expected to be dominated by moves in oil prices, with hardly any triggers on the local front," the trader said.
Oil prices and geopolitical pressures
US Treasury Secretary Scott Bessent will brief media later in the day and has threatened to impose "the toughest sanctions in history" on Iran, while President Donald Trump has also threatened to impose sanctions on Tehran's trading partners. Iran has condemned US plans to announce new sanctions even as President Masoud Pezeshkian called for a diplomatic solution.
Benchmark Brent crude remained above $92 a barrel, raising concerns for major energy importers such as India, where higher oil prices could fuel inflation and strain the current account and government finances. Oil prices traded near $93 a barrel, a percent down overnight, and have gained around 5 per cent over the past week as deadlock over the opening of the Strait of Hormuz prevails. Ukrainian strikes on Russian energy infrastructure have also added to oil price pressure.
A spike in Brent will affect India's inflationary outlook and domestic bond yields, according to The Hindu Business Line.
RBI stance and inflows offer support
Last week, minutes of the Reserve Bank of India's August monetary policy showed policymakers are open to rate hikes, if inflation risks materialise and broaden. Governor Sanjay Malhotra said evidence of such spillovers could warrant "policy tightening", while Deputy Governor Poonam Gupta said a case for a hike may emerge this year.
A key supportive factor for bonds is the central bank's weekend announcement that it had garnered nearly $73 billion through measures rolled out to bolster India's balance of payments. The RBI said it has garnered about $65 billion through the Foreign Currency Non-Resident Bank account (FCNR-B route), ahead of the August 31 deadline. Total inflows come to around $72 billion, including those from external commercial borrowings (ECBs) and overseas foreign currency bonds (OFCBs). The inflows have given a boost to the country's forex reserves, which stand at around $716 billion.
Rates and rupee
India's overnight indexed swap rates may continue to witness further uptick tracking bond yields. The one-year rate ended at 5.9025 per cent, while the two-year rate closed at 6.1250 per cent. The liquid five-year rate settled at 6.42 per cent.
The rupee opened six paise higher at 95.64 per dollar, from previous close of 95.70. Analysts from Finrex Treasury Advisors said exporters are likely to sell near Rs 95.75 per dollar level, which the RBI seems to be protecting, as this is the last week for mobilizing FCNR deposits.