Indian government bonds ended little changed Tuesday, as gains from firmer U.S. Treasuries and softer oil after Lebanon announced a partial Hezbollah-Israel ceasefire were capped by caution ahead of the Reserve Bank of India's policy decision.
Brent crude and U.S. Treasury yields eased in Asian trade, taking some pressure off India's oil-sensitive curve.
The 6.48% 2035 yield ended at 7.0129%, compared with 7.0181% on Monday. Yields move inversely to bond prices.
Traders are bracing for a difficult RBI decision as the Middle East energy shock and a weak monsoon threaten to squeeze growth while fanning inflation. The repo rate stands at 5.25%.
Nearly 80% of economists in a Reuters poll expect the central bank to keep rates unchanged at Friday's meeting. Still, Standard Chartered, Capital Economics, ANZ, MUFG and OCBC expect a hike.
The RBI is also expected to update inflation and growth forecasts for 2026-2027 to reflect the fallout from the Iran war.
"We expect the MPC to maintain the current policy rate at this meeting," said Umesh Sharma, debt chief investment officer at Wealth Company Mutual Fund, but said he expects a "distinctly hawkish tone," with guidance focused on energy and food risks, and possible currency-stabilising steps.
Nomura expects the RBI to shift its liquidity stance to "neutral" from "adequate" while retaining a data-driven, agile bias.
India's oil vulnerability remains in focus as it imports nearly 90% of its crude needs. The rupee has slumped to record lows since the Iran war began and the equity market has slipped to seventh place globally in market capitalisation.
Growth is seen easing to 7.2% in January-March, down from a better-than-expected 7.8% in the previous quarter.
RATES
Overnight indexed swap rates eased, tracking lower oil and U.S. Treasury yields.
The one-year swap eased 2.25 bps to 6.09%, while the two-year rate fell 3 bps to 6.2975%.
The five-year rate dropped 4.5 bps to end at 6.6%.
