MUMBAI, Oct 18 (Reuters) – Indian government bond yields are likely to rise in early trade on Wednesday as crude oil prices as well as U.S. Treasury yields rose overnight.
The 10-year benchmark 7.18% 2033 bond yield IN071833G=CC is likely to be in the 7.32%-7.37% range, after ending at 7.3264% in the previous session, a trader with a private bank said.
“Both these factors have a major impact on sentiment. The current moves are favouring the bears,” the trader said.
“The only saving grace for the time being is that the central bank’s open market bond sale may be delayed due to the liquidity deficit.”
Oil prices rose after industry data showed a bigger-than-expected draw in U.S. 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 oil supply disruptions.
The benchmark Brent crude contract was above $92 per barrel. It has risen over 7% in five sessions through Wednesday.
Elevated oil prices have a direct impact on inflation prints for net importers such as India.
U.S. yields surged after U.S. retail sales last month increased by more-than-expected 0.7% against Reuters polled forecast of a 0.3% gain, reaffirming bets that the Federal Reserve will keep interest rates higher for longer.
This pushed the two-year U.S. yield to fresh over 17-year high, while the 10-year yield posted an over 16-year closing high. The U.S. 10-year yield also posted its largest single-session gain in nearly three months.
Elevated U.S. yields may make Indian assets less attractive for foreign investors that 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 expectation the Reserve Bank of India’s planned sale of bonds via open market operations could be delayed.
Source : Reuters