INDIA BONDS-India bond traders cautious as global developments further sap sentiment

By Dharamraj Dhutia

MUMBAI, Jan 12 (Reuters) - Indian government bonds are expected to start the week on a cautious note, as a mild optimism after a lower-than-scheduled quantum for state debt was overpowered by global geopolitical tensions as well as a deepening feud between the U.S. Federal Reserve and President Donald Trump.

The benchmark 10-year 6.48% 2035 bond yield IN064835G=CC is likely to be in the range of 6.63% to 6.67%, a trader with a private bank said. It ended at 6.6401% on Friday.

Bond yields move inversely to prices.

"The recent developments globally have triggered a fresh bout of jitters among bond market participants, and have dashed hopes of even a mild rally," the trader said.

The Trump administration has threatened to indict Fed Chair Jerome Powell over Congressional testimony he gave last summer about a Fed building project, an action Powell called a "pretext" to gain more influence over the central bank and monetary policy.

Oil prices rose due to worsening tensions in the Middle East as investors eyed potential supply disruptions from OPEC producer Iran amid intensifying protests.

The unrest in Iran has killed more than 500 people, a rights group said on Sunday, as Tehran threatened to target U.S. military bases if Trump carries out his renewed threats to intervene on behalf of protesters.

Back home, Indian states will raise 268.15 billion rupees ($2.97 billion) via a debt sale on Tuesday, lower than the scheduled 362 billion rupees, providing some short-lived relief.

Investors have been concerned about the appetite to absorb the record amount of debt sales in the last quarter of fiscal 2026, as the centre and states are set to raise a record 8 trillion rupees through bond sales.

RATES

India's overnight index swap rates may see marginal paying pressure amid escalating global worries.

The one-year OIS INR1YMIBROIS=CC ended at 5.49% on Friday, while the two-year OIS rate ended at 5.5850%. The liquid five-year OIS rate INR5YMIBROIS=CC rose 3 bps to end at 5.5975%

KEY INDICATORS:

Benchmark Brent crude futures LCOc1 was down 0.2% at $62.40 per barrel after rising 2.2% on Friday

Two-year U.S. Treasury yield US2YT=RR was at 3.5383%, 10-year U.S. Treasury yield US10YT=RR at 4.1673%

RBI to buy bonds worth 500 billion rupees

($1 = 90.2500 Indian rupees)