Indian bond traders may look to cut positions with Brent on cusp of $100

MUMBAI: Indian government bonds could witness some selling pressure in opening deals on Wednesday, reversing some of the previous session’s gains, as benchmark Brent crude has climbed to nearly $100 per barrel, stoking inflation fears.

The yield on the benchmark 6.94% 2036 bond is expected to move between 6.94% and 6.98%, a trader at a private bank said, after closing at 6.9431% in the previous session.

“There was some positive momentum getting built up about the central bank not undertaking any stringent liquidity absorption measures, but the spike in oil prices is expected to reverse recent gains,” the trader said.

Oil prices jumped for the fourth straight session in Asian hours, after Iran launched fresh attacks on US military assets in the Gulf and the conflict between Washington and Tehran spilled out across the region.

Iran’s Revolutionary Guards said they had attacked two US destroyers and a US base in Jordan’s Al Azraq with ballistic missiles in retaliation for US attacks on Iranian oil tankers.

Meanwhile, US Secretary of State Marco Rubio warned Iran that the US would continue to strike Iranian oil tankers in retaliation for attempted attacks on US warships.

Brent crude has risen 10% so far this month.

A sustained rise could worsen India’s inflation trajectory and impact government finances.

India’s central bank continued with overnight variable-rate reverse repos to withdraw liquidity on Tuesday, instead of undertaking measures such as bond sales.

The banking system liquidity had surged to a record high on large diaspora deposit inflows. Large liquidity surpluses, if sustained, risk raising inflation and boosting financial asset prices.