MUMBAI: Indian government bond yields turned lower on Tuesday on the back of a drop in oil prices that could ease inflationary pressures, alongside sustained value buying.
Bond yields had opened higher, tracking a relentless spike in US yields, before the sentiment turned bullish.
The benchmark 10-year Indian government bond yield was at 7.3117% as of 0435 GMT.
The yield touched a high of 7.3796% in early trades after closing at 7.3643% on Monday.
Indian Bond yields seen higher, tracking relentless rise in US peers
“Bonds have already seen a very large selloff in last few days, and may have factored in all the major negatives,” said a trader with a state-run bank.
“The fall in oil is something that cannot be ignored, and further rise in yields was looking tough, which led to change in sentiment.”
The decline in oil prices sustained through Monday, with the benchmark Brent crude contract settling at its lowest level in nearly nine months, pressured by a strengthening dollar as market participants awaited details of new sanctions on Russia.
The contract has dropped more than 7% in the last two sessions and was trading at $84.50 per barrel, easing over 12% so far this month. Easing oil prices aid India’s inflation outlook as the nation imports bulk of its oil requirement.
India’s inflation rose to 7% last month, and has stayed above the central bank’s tolerance level for eight straight months to August. The Reserve Bank of India’s policy decision is due on Friday, with 26 of 51 economists in a Reuters poll predicting a 50-basis-point hike, taking the repo rate to 5.90%.
Another 20 predicted a 35 bps increase. Meanwhile, the US Treasury yield curve inversion continued to deepen, and yields hit fresh highs on Monday, amid concerns that central banks globally will keep tightening monetary policy to curb stubbornly high inflation.
The 10-year US yield jumped above 3.93%, its highest level in more than 12 years, while the two-year yield continued to trade near levels seen in 2007.
Fourteen Indian states will raise 277.36 billion Indian rupees ($3.41 billion) via a sale of bonds maturing in four to 30 years later in the day.
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