Indian government bonds were caught in a narrow range on Monday as investors were reluctant to take fresh positions before the central bank's policy decision later in the week.
Markets are bracing for a widely expected rate hike from the Reserve Bank of India on Wednesday, the first since 2023, while awaiting guidance on the inflation outlook and liquidity management.
"For the week, markets are expected to trade with a cautious bias ahead of the domestic Interest Rate Decision later this week and will continue to draw cues from global geopolitical developments," STCI Primary Dealership said in a note.
Softer U.S. Treasury yields have offered some relief, with the 10-year U.S. yield easing to 5.26% on Monday after briefly touching a 24-year peak on Thursday.
India's benchmark 6.94% 2036 bond yield traded at 7.2108% on Monday, little changed from Friday's close.
India's debt market was among emerging Asia's more resilient last quarter, FTSE Russell said, but traders say that resilience is being tested as markets brace for an RBI rate hike, following increases by central banks in Indonesia and the Philippines.
The US Federal Reserve and the Bank of Japan have also raised rates since the US-Israeli war on Iran began seven months ago.
Minutes of the Fed's latest meeting are also on the radar. A softer-than-expected U.S. jobs report on Friday strengthened expectations that the central bank could pause this month, potentially easing pressure on global yields.
Meanwhile, heavy domestic bond supply remains a persistent headwind. Indian states plan to raise 3.61 trillion rupees ($37.48 billion) through bond sales in October-December, exceeding market expectations.
RATES
Overnight indexed swaps edged lower, tracking US yields.
The one-year OIS was flat at 6.2625%, while the two-year rate 2.25 basis points to 6.4475% and the five-year slipped 2.75 bps to 6.69%.
