Indian are
likely to trend little changed in opening deals on Tuesday, but
bias will remain towards caution as the focus remains on the
central bank’s monetary policy decision, due Friday, in the
shadow of continuing U.S.-Iran tensions.
Yield on the benchmark 6.48 per cent 2035 note is expected to trade
in the 7.00 per cent to 7.05 per cent range, a private bank trader said. It had
ended at 7.0181 per cent on Monday. Bond prices move inversely to
yields.
Indian states aim to raise $2.54
billion through sale of bonds later in the day, which would be
followed by New Delhi’s 340-billion-rupee sale of a new 10-year
2036 note at the end of the week.
“The bias seems to have tilted towards caution and
bearishness in the run-up to the monetary policy decision and a
further firming up of yields cannot be ruled out for next couple
of sessions,” the trader said.
Nearly 80 per cent of economists in Reuters’ May 22-29 poll expect
the repo rate to remain unchanged at the
monetary policy decision on June 5, despite a rising clamour
from some quarters for a rate hike. Standard Chartered, Capital
Economics, ANZ, MUFG and OCBC are among the minority calling for
an interest rate increase.
The central bank is also expected to update its inflation
and growth forecasts for the fiscal year ending March 2027, amid
spillover impact from the war in the Middle East.
Bonds have remained under selling pressure as a spike in
crude oil prices and a weakening local currency raised the odds
of an earlier-than-expected rate hike.
Indian assets are highly exposed to swings in oil prices,
with the country importing 90 per cent of its crude needs.
Government rates
India’s overnight index swap rates ended higher on Monday,
on rising expectations of a hawkish monetary policy this week.
The one-year swap ended at 6.1150 per cent, while
the two-year rate and the five-year rate
settled at 6.33 per cent and 6.6375 per cent respectively.