MUMBAI: Indian government bond yields started the week higher, tracking elevated US Treasury yields and oil prices, with focus shifting to the Federal Reserve’s monetary policy meeting later in the week.
The 10-year benchmark 7.18% 2033 bond yield was at 7.1778% at 10:00 a.m. IST on Monday, after ending at 7.1644% on Friday. The yield had posted its biggest single session rise since June 30 on Friday.
“The upward move in yield which started on Friday is persisting on Monday, with yields showing sharp pullback after a strong fall witnessed in early part of last week,” a trader with a state-run bank said.
“Index inclusion optimism is still there, but the levels of US yields and oil are definitely not comfortable.”
US yields remain elevated, with the 10-year yield staying above 4.30%, as markets await the Fed’s policy decision due on Wednesday.
Even though there is no expectation of a rate hike, markets are expecting rates to remain elevated for longer, and would react to commentary from Fed officials.
Crude oil prices continue to stay higher, with the benchmark Brent contract hovering around $95 per barrel, its highest level in 10 months, amid persistent supply worries.
India bond yields edge higher ahead of fresh supply
India is one of the largest importers of the commodity and elevated prices could impact local inflation, which eased to 6.83% in August from 7.44% in July but remained above the central bank’s target band.
Nomura said India appears more vulnerable to higher oil prices and worsening current account balances.
The rise in bond yields on Friday started after weaker-than-expected demand at a debt auction.
Still, the rise may be capped amid growing optimism over inclusion of Indian bonds in global indices.
JPMorgan will likely review the composition of its index by early October, while a review of the FTSE global bond index is due before September-end.
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