India bonds slips as Treasury rout offsets oil slide

Mumbai: Indian government bonds declined on Wednesday amid a US Treasury selling spree driven by unexpectedly high inflation data, which overshadowed the impact of cheaper oil prices. The benchmark 10-year US Treasury yield surged by over 12 basis points to 4.9830% in Asian trade after October inflation surpassed expectations and signals of a faster rate hike policy from policymakers.

Higher US yields diminish the advantage of riskier Indian bonds, diminishing their attraction to foreign investors. The 6.94% 2036 bond yield climbed around 5 basis points from Monday's close to 7.2005% by 10:40 a.m. IST. Markets were closed on Tuesday for a public holiday. Before the auction of a 340 billion rupee ($3.62 billion) bond on Friday, which will inject a significant supply, traders had sold the 10-year bond.

Brent crude slipped $6 over three sessions to $92.4 a barrel, following US officials' reluctance to contemplate additional military action against Iran. However, it rebounded slightly on Wednesday after dipping to a two-month low of $91.41 in the preceding session. Although lower oil prices alleviate India's inflation and fiscal pressures, investors are apprehensive about the prospect of a December Fed rate hike, which could prompt the Reserve Bank of India to tighten policy as well.

According to a private-bank trader, "With US CPI confirming potential Fed rate hike in December, the probability of RBI increasing rates in the forthcoming policy heightens." The 10-year yield may trade between 7.10% and 7.25% until the next RBI policy, said the trader. Traders will now monitor India's October inflation data due on Thursday. A Reuters poll anticipates annual inflation at 5.93%, up from 5.54% in September.