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Bonds Conflicted

INDIA

Bonds fell yesterday as crude oil rallied, extending gains from a 7-year high which stoked inflationary concerns, the decline was tempered by the RBI's 7-day reverse repo operations which saw a cut-off lower than expected. The operation was conducted at 3.61%, compared to 3.99% at the previous operation which was just 1bp below the RBI policy rate of 4.00%. Crude futures have softened slightly in the Asia-Pac session but remain elevated, while markets will also assess Moody's decision to raise India's outlook to stable from negative. The ratings agency said "The downside risks from negative feedback between the real economy and financial system are receding". Markets look ahead to the RBI rate announcement on Friday while closer on the horizon is the RBI's INR 200bn bond sale.

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