India bonds dip as Fed move seen as final straw pushing RBI toward hikes
TLT•Swap rates move higher
Overnight indexed swap (OIS) rates moved by around 5 bps across major part of the curve with strengthening bets of an October rate hike.
On Wednesday, the one-year INR1YMIBROIS=CC rate was at 6.14%, while the two-year INR2YMIBROIS=CC rate was at 6.35%, and the five-year INR5YMIBROIS=CC rate moved to 6.67%.
($1 = 95.8875 Indian rupees)
Indian bonds fall after Fed signals another hike
Indian government bonds fell in early trade on Thursday after the U.S. Federal Reserve raised rates for the first time since July 2023 and signalled another hike later this year, adding pressure on the RBI to follow suit.
The benchmark 6.94% 2036 bond yield IN069436G=CC was at 7.0779% as of 10:10 a.m. IST, after closing at 7.0524% on Wednesday.
U.S. Treasury yields rose on Wednesday, with the 10-year Treasury yield stuck around the 5% mark after the Fed flagged at least another 25 basis point move further in the next quarter to control inflation. The decision, the Fed's first such move in over three years, was unanimous.
Market bets on a rate hike at the Fed's next meeting in late October held at roughly 50%, and jumped to nearly 90% for such a move in December, according to CME FedWatch.
DBS expects the Fed to hike in December and once more in early 2027 as the Fed statement also reflects sufficient comfort with growth, consumption, labour market, and productivity to retain the focus on inflation for the time being.
RBI debt sale and inflation keep pressure on local yields
Back home, investor sentiment continues to deteriorate ahead of the Reserve Bank of India's planned open market sale of debt, with the first tranche taking place later in the day.
