India bonds skid as crude soars, Treasuries fall
Indian government bonds decline, following a sell-off in US Treasuries as rising crude oil prices stoked inflation fears ahead of the release of inflation data
On Tuesday, Indian government bonds fell in tandem with a selloff in US Treasuries, as soaring crude prices reignited inflation concerns. Brent crude prices rose slightly in Asian trade after an increase of 5% on Monday, reaching $87.70 a barrel. The ongoing conflict between the United States and Iran, along with renewed supply concerns, cast a shadow over hopes for an end to the war.
The benchmark 10-year US Treasury yield surged 6 basis points on Monday and further increased by 1 basis point to 4.71% on Tuesday. India, being the third-largest oil importer and consumer globally, is particularly susceptible to fluctuations in crude prices. Rising US yields typically reduce demand for riskier emerging-market debt.
The benchmark 6.94% 2036 Indian bond's yield stood at 6.7907% at 11:45 a.m. IST on Tuesday, up from 6.7643% at the previous close. Bond yields move inversely to prices. Investors are now closely monitoring US inflation data, scheduled for release on Wednesday, as mounting price pressures have raised the probability of a September Federal Reserve rate hike to 51%, up from 44% the previous day.
India's retail inflation data, also due on Wednesday, is forecasted to rise to 4.50% in July from 4.38% in June. Food prices are anticipated to be the main upward driver after overall increases in July, while softer global gold prices may help curb core inflation. While inflation may continue to rise, it is unlikely to be severe enough to warrant a response from the Reserve Bank of India, according to a foreign bank trader.
The RBI recently lowered its inflation forecast in a dovish policy decision, prompting analysts to reconsider rate-hike calls.
Additionally, Indian states plan to issue ₹15,300 crore ($1.6 billion) of bonds on Tuesday, a test of market appetite. Overnight index swaps in India have also risen, following the trend in US yields. The one-year rate increased by 3 basis points to 5.8075%, while the two-year rate climbed 5.5 basis points to 5.99%. The five-year rate surged 5.25 basis points to 6.31%.
Written by urgent.news from Hindu BusinessLine's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
