MUMBAI: Indian government bond yields rose on Thursday, as a sharp rise in US Treasury yields and oil prices weighed on investor sentiment.
The 10-year benchmark 7.18% 2033 bond yield was at 7.3771% as of 10:00 a.m. IST, after ending at 7.3465% in the previous session.
“The 10-year US Treasury yield is heading towards the key 5%-mark and that will keep the domestic 10-year benchmark bond yield above 7.35%,” said a trader with a private bank.
The US yields at long and short-dated tenors hit 16-year highs as markets wagered that the strength of the US economy would prompt Federal Reserve Chair Jerome Powell to strike a hawkish tone at a scheduled speech later in the day.
The 10-year US yield was at 4.9599% and has risen by 33 basis points so far this week.
If it tests 5%, then the Indian benchmark bond yield may test 7.40% and the next key level would be 7.43%, said a trader at a state-run bank.
Meanwhile, oil prices rose about to a two-week high on Wednesday on a bigger-than-expected US storage draw and concerns about global supplies.
India bond yields rise tracking spike in oil prices, US peers
The benchmark Brent crude contract was trading above $90 per barrel.
However, traders said market sentiment may be aided by expectations that a persistent liquidity deficit in India’s banking system may prompt the Reserve Bank of India to delay a planned sale of bonds.
“The RBI would conduct debt sales only when there is a permanent infusion of liquidity in terms of foreign purchases,” said Dhawal Dalal, chief investment officer - fixed income at Edelweiss Asset Management.
“The central bank may not conduct debt sales in full flow until substantial foreign purchases are seen.” Yields had risen after the RBI earlier this month announced it planned to sell bonds to curb liquidity surplus.
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