Indian government bonds may open Monday on a soft footing as a hefty state borrowing plan darkens sentiment in a market already bruised by elevated oil prices and global yields ahead of the Reserve Bank of India’s policy decision.
The benchmark 6.94 per cent 2036 bond yield may trade in a 7.20 per cent-7.26 per cent band, a private-bank trader said. It ended Thursday at 7.2133 per cent, a two-and-a-half-year high, after climbing nearly 10 basis points last week.
Markets were closed Friday for a local holiday.
The RBI will announce its decision on Wednesday. Investors have loaded up bets that the RBI will raise rates this week, with 60 per cent of economists in a Reuters poll expecting a 25-basis-point increase, the central bank’s first hike since 2023.
“The pass-through of higher input prices is underway, and retail prices will continue on an uptrend,” said Maulik Patel, head of research, Equirus Securities.
RBI is also dealing with a liquidity surplus, elevated and rising global rates weighing on the rupee, and a low current real rate – all necessitating the central bank to take action, Patel added.
Shifting expectations for US policy could also complicate the RBI’s rate calculus.
Fed policymakers were already leaning against delivering a second straight rate hike this month, and a softer-than-expected US jobs report on Friday reinforced the view that it may pause this month.
The US 10-year yield inched lower to 5.2558 per cent in Asian trade, easing some pressure, while Brent crude was little changed around $101 per barrel.
SUPPLY OVERHANG
States plan to raise ₹3.61 lakh crore ($37.48 billion) through bonds in October-December, exceeding market estimates.
The flood of supply could weigh most heavily on longer-dated notes, traders said, particularly after New Delhi increased long-end issuance in its second-half borrowing programme.
Recent RBI open-market sales—the largest in a decade—have added to the supply burden as the central bank drains excess cash.
RATES
Overnight indexed swaps may remain rangebound before policy. The one-year OIS ended at 6.2650 per cent on Thursday, the two-year at 6.48 per cent, and the five-year at 6.73 per cent.