Indian bonds skid as crude soars, Treasuries fall
MUMBAI: Indian government bonds buckled early on Tuesday, shadowing a Treasury selloff, as soaring crude prices rekindled inflation fears, while traders braced for economic data from India and the US for fresh signals on the rate path. Brent crude was up slightly in Asian trade after having risen 5% on Monday to $87.70 a barrel. Washington rebuffed Tehran’s peace proposal with new demands,…
Indian government bonds experienced a decline on Tuesday, mirroring a Treasury selloff amid soaring crude prices, which reignited inflation concerns, and traders preparing for economic data releases from India and the US to gauge potential shifts in interest rate policy. Brent crude prices slightly increased in Asian trade following a 5% surge on Monday, reaching $87.70 a barrel.
Washington declined Iran's peace proposal, elevating the likelihood of the conflict persisting and exacerbating supply worries. The 10-year US Treasury yield rose by 6 basis points on Monday and further climbed by 1 basis point to 4.71% on Tuesday. India, the world's third-largest oil importer and consumer, is particularly susceptible to fluctuations in crude prices.
Rising US yields often dampen demand for riskier emerging-market debt. The benchmark 6.94% 2036 Indian bond yield stood at 6.7907% at 11:45 a.m. IST, up from 6.7643% at Monday's close. As bond yields exhibit an inverse relationship with prices, investors are now concentrating on US inflation data slated for release on Wednesday.
With price pressures mounting, the odds of a September Federal Reserve rate hike have risen to 51%, from 44% the previous day. India's retail inflation data, expected on Wednesday, is projected to slightly increase to 4.50% in July from 4.38% in June. Bank of Baroda economists attribute the food price hike as the primary upside risk following broad-based price increases in July, although softer global gold prices might help temper core inflation.
A foreign bank trader suggests that inflation may intensify in the forthcoming months, but the rise is improbable to be severe enough to warrant a response from the Reserve Bank of India. The central bank recently decreased its inflation forecast in a dovish policy decision, prompting analysts to revise down rate-hike expectations.
Meanwhile, Indian states are scheduled to issue 153 billion rupees ($1.6 billion) in bonds on Tuesday, a bond sale that will test market appetite.
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