Govt bonds face twin drag from rising oil, US yields
Rising oil prices and mounting fiscal worries also sent the benchmark 10-year U.S. Treasury yield to its highest level since 2023 on Wednesday. It was last at 6.84%.
India's government bonds slipped for the second consecutive day on Thursday, as U.S. Treasury yields and oil prices rose, raising concerns about inflation. The price of Brent crude oil surged after a conflict between U.S. and Iranian tankers near the Strait of Hormuz, deepening supply concerns for the world's third-largest oil importer.
Higher oil prices threaten to increase India's import bill, strain government finances, and stoke inflation, negatively impacting financial markets. This situation also pushed the 10-year U.S. Treasury yield to its highest level since 2023, reaching 6.84% as of Wednesday. The Indian bond market, however, was protected by a liquidity surplus of 10.49 trillion rupees ($110.30 billion) on Wednesday.
The benchmark 6.94% 2036 bond yield rose to 6.9665% as of 10:20 a.m. IST, marking a 1 basis point increase from the previous close. The weakening rupee, now trading at 95.16 per dollar, continued to suffer due to the oil price surge. The Reserve Bank of India (RBI) may intervene with dollar-rupee sell-buy swaps and consider a 25 basis point hike in the Cash Reserve Ratio (CRR) to 3.25%, according to traders.
The focus now lies on U.S. and India inflation data, as well as the Federal Reserve's policy decision to be announced next week. Traders advise investing in papers that offer carry gains and are less sensitive to interest rate changes for the time being.
Written by urgent.news from Hindu BusinessLine's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
