10-year bond yield ends higher with soaring oil prices

“Rising crude oil prices pose inflation risks in India, which imports nearly 85% of its crude oil needs,” said Kunal Sodhani, assistant vice president, Global Trading Center, Shinhan Bank India.

The benchmark bond yield ended up for the second day in a row by 2 basis points on Monday due to a sharp rise in oil prices and US Treasury yields. Yields on a 10-year benchmark bond rose almost 7 basis points in two trading days. The benchmark bond yield of 6.10% through 2031 stood at 6.2087%, compared to 6.1810% at the close of the previous trading session.

“Global factors have once again taken center stage. Bond yields have risen in recent days, following the rise in crude oil prices and Treasury yields, ”said Pankaj Pathak, fund manager, fixed income, at Quantum Asset Management.

Brent crude oil prices rose for the fifth day in a row on Monday due to increased demand around the world following the easing of Covid-19 restrictions due to increased vaccinations. But the supply remains low. At market close, Brent crude was trading at $ 79.08 per barrel for the November expiry.

Market participants said rising oil prices posed a risk of rising inflation, which has moderated recently after twice breaking the Reserve Bank of India’s upper tolerance band in May and June. . The risk of inflation increases because India imports a large supply of crude oil.

“Rising crude oil prices pose inflation risks in India, which imports nearly 85% of its crude oil needs,” said Kunal Sodhani, assistant vice president, Global Trading Center, Shinhan Bank India.

Meanwhile, the benchmark yield also rose as on Friday the US Treasury yield rose 6 basis points to 1.47%. The sharp rise in US Treasury yields follows comments from US Federal Reserve Chairman Jerome Powell that the Fed will soon start cutting its bond buying program by $ 120 billion per month.

Brokers said the rise in US Treasuries is becoming more attractive to foreign investors than emerging market securities. In addition, the rise in yields on US Treasuries and the decrease in the Fed will warn the RBI when making policy decisions. “The reduction in asset purchases by the Fed will also have implications for national monetary policy,” Pathak said.

In addition, the appetite of most traders is low as the central government borrowing schedule is expected to be announced later this week. A broker at a private bank said the increase in borrowing would put pressure on the benchmark yield in the coming days. Given this, they expect benchmark bond yields to trade between 6.15% and 6.25%.

“Traders continue to wait for details of the borrowing schedule for the second half of the year. Bonds could trade defensively in the short term, as interest in long positions weakens in light of the RBI’s monetary policy, which is due October 8, ”Sodhani said.