Indian government bonds are expected to barely move in early trades on Tuesday, as oil
prices and Treasury yields remain elevated, even as they did not
add to their gains.
The benchmark 6.48% 2035 bond yield may move
in a 7.10%-7.15% range, a private bank trader said. It had ended
at 7.1313% on Monday. Bond prices move inversely to yields.
“Looking at the way oil and Treasuries moved overnight, it
is unlikely that we see any major selloff like yesterday, and
the key levels are expected to be protected,” the trader said.
Oil prices eased slightly in Asian hours after U.S.
President Donald Trump said he had paused a planned attack on
Iran to allow for negotiations to end the war in the Middle
East.
Trump said on Monday there was a “very good chance” the United
States could reach an agreement with Iran to prevent Tehran from
obtaining a nuclear weapon, hours after announcing the pause in
military action to allow talks.
Still, the benchmark Brent crude remained close to $110 per
barrel, a level that is not comfortable for India, which has
assumed the average crude basket at $85 per barrel.
Elevated prices could fuel inflation, pressure the rupee,
widen the current account deficit and complicate the
government’s fiscal calculations for India, which imports nearly
90% of its crude requirements.
Meanwhile, U.S. Treasury yields eased marginally, but the
10-year yield stayed near 4.60% handle amid a global market
selloff in longer-dated bonds driven by war-related inflation
concerns.
Futures showed a 47% probability that the Federal Reserve
will hike interest rates in December, while bets on any further
rate cuts have been ruled out.
RATES
India’s overnight index swap rates are expected to search
for directional cues, after witnessing heavy paying in the
previous session.
The one-year swap ended at 6.31%, while
the two-year rate ended at 6.55%. The five-year
rate closed at 6.85%, after hitting a 31-month
high on Monday.