Benchmark yield eases to 7.40% as oil falls ahead of inflation data

MUMBAI: Indian government bond yields fell in early trading on Wednesday as oil prices eased further, while investors waited for retail inflation data due later in the day.

The benchmark Indian 10-year government bond yield was at 7.4028% as of 0430 GMT, after ending at 7.4257% on Tuesday.

“Oil prices are acting as a major supporting trigger,” a trader with a state-run bank said. “Also, 7.50% may not be broken easily and hence we have seen a reversal from those levels.”

Global oil prices slipped further, with the benchmark Brent crude contract down for a third consecutive day, as investors fretted about a hit to fuel demand from growing risks of a recession and tightening COVID-19 curbs in China.

Benchmark crude contract was down 0.5% at $93.80 per barrel, after sliding around 3.8% in the last two sessions. It had risen 11% last week.

India is one of the largest importers of crude oil and higher prices of the commodity have a direct impact on its inflation.

Indian bond yields rise as 10-year US yield nears 4%

Traders’ focus could be on India’s retail inflation, with a Reuters poll projecting a likely acceleration to a five-month high of 7.30% in September.

The reading could stay well above the central bank’s tolerance band for a ninth straight month. Some 91% of economists, 43 of 47, expect inflation to be 7.00% or higher, suggesting the bias was for prices to go up further.

The Reserve Bank of India has raised repo rate by 190 basis points in the five months to September to tamp down inflationary pressures, but the reading is expected to remain above the central bank’s tolerance range in this quarter as well.

India’s inflation data would be followed by keenly-watched US reading on Thursday which could provide more clarity on the Federal Reserve’s interest rate trajectory.

Meanwhile, US Treasury prices rose on Tuesday, but the 10-year yield stayed closed to 4.00% mark on bets that the Fed would opt for another 75 basis points hike in early November in its bid to combat inflation.

The Fed has already raised interest rate by 300 basis points since March and is scheduled to meet in November and December.