Government bond yields rose on Thursday amid climbing oil prices, fueled by doubts over the West Asia ceasefire’s implementation. The yield on the 10-year benchmark bond increased by 6 basis points (bps) to 6.96%. After the violation of the ceasefire as Israel attacked Lebanon, which led to stoppage of tankers passing through the strait of Hormuz, oil prices rose 4% to $ 98 per barrel.
Geopolitical Flare-up
“Crude oil prices have risen in response to some geopolitical developments post ceasefire announcement prompting G-Secs to give back some of previous day’s gains,” said Gopal Tripathi, treasury head at Jana Small Finance Bank. After the ceasefire announcement, yields have fallen by as much as bps.
Dealers said that there were some fresh short positions building ahead of the 10-year G-Sec auction, which will be held on Friday. The RBI will conduct government securities auction worth Rs 34,000 crore.
Tripathi expects the yield on the 10-year benchmark bond to be traded in the range of 6.85-7.15% in the near-term.
April 10 Deadline
Meanwhile, the Indian rupee fell just 8 paise to 92.66 against the dollar, cushioned by dollar supply from banks unwinding arbitrage positions despite higher oil prices. Banks have unwound almost 90% of their arbitrage trades as they had to meet the deadline of April 10, dealers said.
“Banks are still unwinding their positions to meet the April 10 deadline to bring down their net position limit at $100 million. This is capping the rupee around the 93 level now. After the deadline, fundamentals and war-related pressures will take over, with $80-90 crude emerging as the new normal—putting ongoing downward pressure on the currency,” said Amit Pabari, managing director, CR Forex.
The domestic currency has depreciated 3% so far in the calendar year, with the bulk of the decline happening after the West Asia war broke out. Currency traders and analysts expect the rupee to trade in the range of 92-94 in the near-term.