Spike in oil, US yields seen dragging Indian bonds lower

MUMBAI: Indian government bonds are set to decline on Thursday, tracking a spike in crude oil prices and US Treasury yields, while the benchmark bond could see some selling pressure after the central bank did not include the note in its debt purchase program.

The benchmark 6.48% 2035 bond yield will likely hover between 6.63% and 6.69%, a private bank trader said.

The yield had ended at 6.6366% on Wednesday. Bond yields move inversely to prices.

Directionally, bonds should head down, as all indicators favour the bears.

Having said that, the central bank is expected to make its presence felt in the secondary market, like the last hour of the session yesterday,“ the trader said.

An investor category that consists of the Reserve Bank of India, along with other long-term investors, net bought bonds worth 53 billion Indian rupees on Wednesday, data showed.

Traders estimate a bulk of these purchases would be from the RBI in the benchmark paper, which aided a swift decline in yields.

Oil prices jumped again after staying steady for the last couple of sessions, with the benchmark Brent Crude contract nearing $100 per barrel after Iraqi security officials said Iranian explosive-laden boats had hit two fuel oil tankers amid other global supply disruptions from the US-Israeli war on Iran.

Earlier in the week, the contract hit its highest level since July 2022, prompting a selloff across asset classes.

India is the third-largest importer of crude oil, and a spike in oil prices would be detrimental to domestic inflation.

US Treasuries came under selling pressure as a renewed climb in oil prices prompted investors to pare bets on further Federal Reserve rate cuts amid worries about a resurgence in inflation.

The RBI will buy bonds worth 500 billion rupees ($5.42 billion) on Friday, but the auction includes mostly illiquid papers.