India bonds likely to fall as oil, Treasury yields go above key levels

MUMBAI: Indian government bonds could be sold off on Monday, as oil and US Treasury yields broke above key levels, which will likely nudge the rupee to another record low.

The benchmark 6.48% 2035 bond yield may move in a 7.05%-7.10% range on Monday, a private bank trader said.

It had ended at 7.0644% on Friday.

Bond prices move inversely to yields. Brent crude rose above $110 per barrel on Monday, as efforts to end the US-Iran war likely stalled, after a nuclear power plant in the UAE came under attack.

The contract gained 8% last week and is up more than 50% since the war started on February 28.

Treasuries were sold off on Friday, with the 10-year and two-year yields hitting their highest levels in more than a year, as investors braced for possibly higher interest rates due to sticky inflation and expectations for a stronger economy.

“Till the time global factors continue to dominate, there is only one way for the yields to go, and we could see 7.10% being tested or even taken out on the benchmark today,” the trader said.

Futures showed 53% expect the Federal Reserve to hike interest rates in December, while bets of any more rate cuts have been completely ruled out.

Elevated prices could fuel inflation, pressure the rupee, widen the current account deficit and complicate the government’s fiscal calculations for India, which imports nearly 90% of its crude requirements.

India curbed imports of silver in nearly all forms on Saturday to ease pressure on the rupee. The currency hit a record low of 96.1350 per US dollar on Friday.