Key Takeaways
- Indian government bonds may decline as oil prices remain high.
- The 10-year bond yield has risen 62 basis points in the past nine weeks.
- Reserve Bank of India may hike rates further amid inflation concerns.
Indian government bonds are expected to face selling pressure at the start of the new week, as oil prices remain elevated, according to a trader at a primary dealership.
The 6.94% 2036 bond yield is anticipated to trade between 7.45% and 7.50%, following a close at 7.4740% in the previous session.
The benchmark 10-year bond yield has risen 9 basis points through Friday, marking the longest continuous weekly run of rising yields since 1998.
Oil prices ended high on Friday, with the benchmark Brent crude contract rising above $117 per barrel, its highest level in almost six months, after Houthi attacks in Saudi Arabia stoked concerns over further disruption to energy supplies.
The contract gained 6.2% last week, its biggest rise since the week ended September 11, but eased slightly in Asian trading hours on Monday.
India is particularly vulnerable to elevated energy prices, as it imports nearly 90% of its oil needs, which could feed into the nation’s inflation trajectory, impacting the rupee and government finances.
The Reserve Bank of India raised the repo rate and shifted its stance earlier this month, hinting at more hikes, while markets are now pricing in a little over 100 basis points of hikes in the next 12 months, according to overnight indexed swaps.
The US Federal Reserve’s monetary policy decision is due on Wednesday evening and will be in focus, with markets looking beyond what’s expected to be a pause for clues on whether further rate hikes remain on the table this year.
We could see some selling pressure
A trader at a primary dealership, Trader
