India bonds set to rally along Treasuries as Democratic win drives oil to two-month low

MUMBAI: Indian government bonds are set to advance on Thursday, tracking a sharp US Treasury rally after Democrats captured both chambers of Congress, raising hopes of an end to the Iran war, whichdrove crude oil prices to a two-month low.

Voter backlash against President Donald Trump’s policies, especially the war’s impact on living costs, powered the Democrats to a sweeping midterm victory.

The party vowed to rein in Trump’s agenda, raising expectations of reduced fiscal spending and a quicker resolution to the conflict.

The US 10-year Treasury yield, a global borrowing-cost benchmark, was down 4 basis points at 4.85% in Asian trade, after shedding 6 bps on Wednesday.

The dollar declined 0.2%, which may help the Indian rupee. Brent crude plunged 8% on Wednesday to its lowest in more than two months, extending losses in Asian trade to $93.70 a barrel.

For India, the world’s third-largest oil importer, cheaper crude reduces imported inflation risks and eases pressure on government finances.

The benchmark 6.94% 2036 bond yield is likely to test 7.15% in early trade, a private-bank trader said.

It plunged more than 11 bps to 7.1880% on Wednesday, bringing its three-day fall to about 22 bps.

“As the dust settles on the US elections, the sustainability of the relief rally will hinge on the US policy outlook, particularly decisions regarding the West Asia crisis, fiscal and debt dynamics, and AI-related investment policies,” said Radhika Rao, senior economist at DBS.

Traders said they will also be focusing on domestic inflation and its implications for the Reserve Bank of India’s policy path, after the oil-price retreat tempered expectations of aggressive policy tightening.

October retail inflation data is due next week.