India bonds hemmed in by oil worries ahead of inflation data
The benchmark 10-year bond yield was little changed at 6.7822% as of 11:45 a.m. IST
Indian government bonds remained trapped within a narrow range on Wednesday as soaring oil prices dampened risk-taking ahead of U.S. and domestic inflation data. The benchmark 10-year bond yield barely budged at 6.7822 percent by 11:45 a.m. IST. Fears of conflict in the West Asia region deepened on Tuesday when the U.S. and Iran-aligned Houthis reported additional sea attacks, and Iran vowed to keep the Strait of Hormuz closed unless Washington accedes to its demands.
Brent crude futures nudged up 0.8 percent to $89.6 per barrel, after surging 6.5 percent over the prior two days. Higher oil prices exacerbate inflationary pressures and strain the finances of India, a nation heavily reliant on oil imports. Analysts are now keeping a close eye on both local and U.S. inflation data to gauge the direction of interest rates.
India's retail inflation is expected to be released at 4 p.m. IST, with a Reuters survey predicting a July figure of 4.50 percent, up from 4.38 percent in June. U.S. data is slated for release after the Indian market closes. RBI rate hikes have become less likely since the central bank maintained rates unchanged last week and revised its inflation forecasts downward.
The 10-year yield remains wedged between 6.76 percent and 6.80 percent, and it is proving challenging to break out of this range. A hotter-than-anticipated U.S. inflation reading, however, could revive expectations of further Federal Reserve rate hikes, squeezing Indian yields and the yield spread over U.S. bonds by compressing the premium.
The Reserve Bank of India's diaspora deposit scheme has attracted over $36.7 billion as of July 17, according to RBI data. This influx, combined with government spending, has driven India's daily average cash surplus above 3 trillion rupees in August. Overnight index swap rates have ticked higher due to oil-induced market unease.
The one-year rate stands approximately 1 basis point higher at 5.80 percent, while the two-year rate remains unchanged at 5.98 percent. The five-year rate has climbed 1.25 basis points to 6.3050 percent.
Written by urgent.news from Hindu BusinessLine's reporting — not their text. Machine-written — it may contain errors, so check the original before relying on it.
