MUMBAI: Indian government bond yields rose on Wednesday, with the benchmark bond yield at the upper end of the near-term trading range, following a jump in crude oil prices and US Treasury yields.
The 10-year benchmark 7.18% 2033 bond yield was at 7.3479% as of 10:00 a.m. IST, after ending at 7.3264% in the previous session.
“Bonds have already adjusted to the recent spike in oil and Treasuries, and benchmark yield should consolidate around 7.35% levels,” a trader with a private bank said.
“Hopes of delay in open market sales is providing an upside cap in yields for the time being,” the trader added. Oil prices rose after industry data showed a bigger-than-expected draw in US crude stocks.
The escalating conflict in the Middle East after hundreds were killed in a blast at a Gaza hospital also sparked concerns about potential supply disruptions.
The benchmark Brent crude contract was trading around $92 per barrel.
Elevated oil prices have a direct impact on inflation prints for net importers such as India.
US yields surged after retail sales last month increased by a more-than-expected 0.7% against Reuters polled forecast of a 0.3% rise, reaffirming bets that the Federal Reserve will keep interest rates higher for longer.
The two-year US yield rose to a fresh over 17-year high, of 5.24%.
Elevated oil, US yields may nudge Indian bonds yields higher
The 10-year yield at around 4.83% is within a touching distance of an over 16-year peak of 4.89% hit earlier in the month.
Elevated US yields may make Indian assets less attractive for foreign investors who have more than doubled purchases of bonds that would form a part of JPMorgan’s emerging market bond index.
Meanwhile, a persistent liquidity deficit in India’s banking system has led to the expectation that the Reserve Bank of India’s planned sale of bonds could be delayed.
Bond yields have remained elevated after the RBI said it plans to sell bonds via auctions to curb liquidity surplus.
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