Ten-year bonds rally as crude oil slides, fuel hopes of entry in global index

The 10-year bond yield rallied for the second straight session on Tuesday, defying a broader selloff in Asia, amid a fall in crude and bets on the inclusion in the global bond indices.

At 12.25pm, the 10-year bond yield was trading at 7.299 percent, down 6 basis points from its previous close of 7.359 percent. On Monday, it dropped 3 basis points. Bond yields and prices move in opposite directions.

FTSE Russell will announce the results of its debt index review on September 29 after close of US markets. India's bonds are also under review for inclusion by JP Morgan Chase & Co India’s inclusion has long been touted for and would be a turning point for the indices, driving an estimated $30-billion inflows, according to a recent note from Goldman Sachs.

Brent crude fell below $85 a barrel as recession fears weighed due to a series of rate hikes to tame inflation in several economies over the past week.

Traders are also awaiting the Reserve Bank of India's bi-monthly policy due on September 30. With falling commodity prices, domestic inflation concerns have eased somewhat. But the external environment is turning extremely hostile with sharply rising Dollar and volatile financial markets, analysts said.

"We expect the RBI to maintain a hawkish tone with particular focus on the external risks. It may hike the policy rate by 35-50 basis points in this meeting while keeping the room open for further hikes if global rates continue to move higher or inflation does not soften," said Pankaj Pathak, Fund Manager-Fixed Income, Quantum AMC .

The government is also set to announce its fiscal second half borrowing plan this week. According to a Bloomberg report, the full year sales are likely to remain unchanged at Rs 14.3 trillion or may even be lowered given the recent increase in revenue.