India bond yields rise as higher oil stokes inflation fears
MUMBAI — Indian government bond yields were higher on Wednesday as the Brent crude contract hovered around $100 per barrel, feeding into concerns over a surge in inflation.
The benchmark 10-year government bond yield was at 7.3046% as of 0455 GMT. The yield has risen 10 basis points in the last four sessions, ending at 7.2811% on Tuesday. The new 10-year 7.26% 2032 bond yield was at 7.2812%, against 7.2684% at previous close.
“Most factors that were supporting bullish view are now turning unfavorable, and this is clearly witnessed in price action,” a trader with a primary dealership said.
Global oil prices rose on Tuesday, with the benchmark Brent crude contract rising to its highest level in three weeks over fears of an imminent output cut by the Organization of the Petroleum Exporting Countries and allies, a group known as OPEC+.
The contract surged nearly 4% on Tuesday and was at $99.80 per barrel on Wednesday. India is a major importer of crude oil and domestic inflationary pressures are expected to mount due to higher prices.
Financial markets locally are vigilant over inflation trajectory. This, despite comments from the Reserve Bank of India Governor Shaktikanta Das, who on Tuesday, sought to allay fears when he said inflation has peaked and bond yields are reflecting that trend.
India’s consumer inflation dipped to 6.71% in July, easing for the third month in a row, but continues to remain above the RBI’s mandated target band of 2-6% for a seventh straight month.
Meanwhile, the 10-year U.S. yield stayed over 3% mark, as investors anticipate hawkish commentary from the Federal Reserve toward tackling inflation.
Markets are focused on Fed Chair Jerome Powell, who is scheduled to speak at the Jackson Hole symposium on Friday.
The U.S. Federal Reserve has hiked rates by 225 basis points since March of this year, including two back-to-back 75 basis points hikes in June and July. Odds of another 75 basis point rate hike by the Fed in September are higher than that of a 50 basis points increase, according to the CME FedWatch Tool.
India will raise 210 billion rupees ($2.63 billion) through the sale of Treasury bills on Wednesday and 320 billion rupees through the sale of bonds on Friday. ($1 = 79.8600 Indian rupees) (Reporting by Dharamraj Lalit Dhutia; Editing by Anil D’Silva )