Key Takeaways
- Indian government bonds remained stable despite oil price volatility.
- The 10-year bond yield hovered around 7% as traders monitored oil moves.
- Expectations of an interest rate hike by the Reserve Bank of India loom.
Indian government bonds were largely unchanged on Wednesday, with the 10-year bond yield staying close to 7%. The benchmark 6.94% 2036 bond yield was recorded at 7.0052% by 10:15 a.m. IST, following a slight decline from the previous day’s close of 7.0106%.
The yield has seen a modest decrease of six basis points since the end of last week, when it was at 7.0686%. This month, the 10-year Indian bond yield has risen about 6 basis points, compared to a 20-basis point increase in US Treasury yields of the same maturity.
Despite the recent global sell-off, Indian bonds have outperformed US Treasuries, according to Rong Ren Goh, fixed income portfolio manager at Eastspring Investments. Goh noted that Indian bonds offer a unique value proposition, with relatively higher absolute yields and impressive volatility-adjusted returns.
Oil prices have been on a downward trend, having fallen for a sixth consecutive session. The price of Brent crude has dropped nearly 10% to $98 per barrel, from around $110 last week. This decline is attributed to the restart of the East-West pipeline and increased ship movements through the Strait of Hormuz.
India’s high dependence on imported crude oil, which accounts for about 90% of its needs, makes it particularly sensitive to global oil price fluctuations. Elevated oil prices and concerns over a weak monsoon season have raised inflation concerns, leading to expectations of an interest rate hike by the Reserve Bank of India (RBI) at its October 7 policy meeting.
Market participants are now leaning towards an RBI repo rate hike, following higher-than-expected August inflation and the Federal Reserve’s recent policy decision. The RBI is expected to address these concerns at its upcoming policy meeting, which could impact the trajectory of Indian government bond yields.
Traders are closely monitoring these developments, with the RBI’s decision likely to influence the bond market’s performance in the coming weeks. The stability of Indian government bonds in the face of global market volatility highlights the unique value proposition they offer to investors.
IGBs are notably low beta in spite of the purported vulnerabilities to higher oil prices… India offers a unique value proposition from a fixed income perspective.
Rong Ren Goh, Fixed income portfolio manager at Eastspring Investments
