Indian government bonds
weakened for a second straight day on Thursday, pressured by
rising U.S. Treasury yields and crude prices holding above
$100/barrel, raising inflation concerns.
Brent crude marched higher overnight after U.S. and Iran struck tankers near the Strait of Hormuz, deepening supply worries.
For India, the world’s third-largest oil importer and
consumer, higher oil prices threaten to swell the import bill,
strain government finances, stoke inflation and sour sentiment
across financial markets.
Rising oil prices and mounting fiscal worries also sent the benchmark 10-year U.S. Treasury yield to its highest level since 2023 on Wednesday. It was last at 6.84%.
The Indian bond market, however, was insulated by a
liquidity glut that limited room for selling. Banking-system
liquidity surplus stood at 10.49 trillion rupees ($110.30
billion) as of Wednesday.
The benchmark 6.94% 2036 bond yield was
perched at 6.9665% as of 10:20 a.m. IST, up 1 basis point from
previous close. The oil spike still continued to batter the
rupee, which slipped for a fifth day to 95.16 per dollar.
The RBI likely conducted near-maturity dollar-rupee sell-buy
swaps on Wednesday, and may continue to opt for such measures,
traders say, as its variable rate reverse repo operations fail
to keep call rates within the policy corridor, trader said.
A 25 basis-point Cash Reserve Ratio (CRR) hike to 3.25%
cannot be ruled out, Axis Capital said in a note.
Focus is now on U.S. and India inflation prints, along with
U.S. Federal Reserve’s policy decision due next week.
“If mandates permit, best to put money in papers that offer
carry gains and are inelastic, and stay there for some time,” a
trader at an asset manager said.
RATES
Overnight indexed swaps surge as rising U.S. yields sour
mood.
The one-year rate was at 6.0150%, the
two-year at 6.2050%, and the five-year
hovered at 6.5075%. All three gained about 3
basis points.