MUMBAI: Govt bond yields ended higher on Monday as a move higher oil prices weighed on sentiment as investors remained wary of the central bank‘s next move in terms of additional offerings.
The 7.18% 10-year bond yield for 2033 ended at 7.3355%, after closing at 7.3166% the previous session.
“Violence in the Middle East has led to a raw price spike,” said Puneet Pal, head of fixed income at PGIM India Mutual Fund. “Given the recent rise in interest rates, which has pushed back expectations of rate cuts, rates have entered attractive territory.”
Oil prices rose as investors considered the possibility of a wider conflict in the Middle East that could impact supply chains.
The benchmark Brent crude contract traded above $90 a barrel, raising concerns about one of the most significant geopolitical risks to oil markets since Russia’s invasion of Ukraine last year.
Elevated oil prices could put pressure on local inflation after soft September readings were offset by persistent US inflation data last week, which fueled bets on higher interest rates in the world’s largest economy.
Indian inflation fell to 5.02% in September from 6.83% in August, but remained above the central bank’s target of 4%.
Meanwhile, yields remained high after the Reserve Bank of India announced its intention to sell bonds through auctions to absorb liquidity from the banking system. Market participants expect the central bank to sell 500 billion rupees ($6 billion) worth of bonds.
The rise in interest rates initially attracted demand from state-owned banks. However, Treasury officials warn that even the largest holders of such securities could slow down in buying in the coming weeks as the banking system’s liquidity tightens.
Traders continue to keep an eye on the RBI’s timing and choice of debt sales as the banking system’s liquidity continues to be in deficit for four straight weeks.
The 7.18% 10-year bond yield for 2033 ended at 7.3355%, after closing at 7.3166% the previous session.
“Violence in the Middle East has led to a raw price spike,” said Puneet Pal, head of fixed income at PGIM India Mutual Fund. “Given the recent rise in interest rates, which has pushed back expectations of rate cuts, rates have entered attractive territory.”
Oil prices rose as investors considered the possibility of a wider conflict in the Middle East that could impact supply chains.
The benchmark Brent crude contract traded above $90 a barrel, raising concerns about one of the most significant geopolitical risks to oil markets since Russia’s invasion of Ukraine last year.
Elevated oil prices could put pressure on local inflation after soft September readings were offset by persistent US inflation data last week, which fueled bets on higher interest rates in the world’s largest economy.
Indian inflation fell to 5.02% in September from 6.83% in August, but remained above the central bank’s target of 4%.
Meanwhile, yields remained high after the Reserve Bank of India announced its intention to sell bonds through auctions to absorb liquidity from the banking system. Market participants expect the central bank to sell 500 billion rupees ($6 billion) worth of bonds.
The rise in interest rates initially attracted demand from state-owned banks. However, Treasury officials warn that even the largest holders of such securities could slow down in buying in the coming weeks as the banking system’s liquidity tightens.
Traders continue to keep an eye on the RBI’s timing and choice of debt sales as the banking system’s liquidity continues to be in deficit for four straight weeks.
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