Bond yields fall as crude oil prices ease

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July 20, 2021 4:00 AM

The most traded 5.63%-2026 and 6.64%-2035 gilts ended nearly 1-3 basis down to 5.6551% and 6.7804%, compared to the previous closes on Friday.

On Friday, the US 10-year Treasury yields remained near 1.3% after strong retail sales data, but fears over rising inflation continue to affect the sentiment.On Friday, the US 10-year Treasury yields remained near 1.3% after strong retail sales data, but fears over rising inflation continue to affect the sentiment.

Yields on government bonds fell on Monday as crude oil prices eased and US Treasury yields fell on July 16, dealers said. The most traded 5.63%-2026 and 6.64%-2035 gilts ended nearly 1-3 basis down to 5.6551% and 6.7804%, compared to the previous closes on Friday. The 10-year new benchmark bond ended marginally down to 6.1268% against 6.1292% in the previous trading session.

“The fall in yields can be attributed to the easing Brent crude oil prices after OPEC+ decision to boost output, but falling commodity prices and cut-offs at auction are also playing a good role in the fall,” said Lakshmi Iyer, CIO – fixed Income and head – products at Kotak Mahindra Asset Management Company.

On July 18, OPEC and its allied nations agreed to raise production limits, after Saudi Arabia and the United Arab Emirates resolved a dispute that was affecting the deal. Crude oil production will increase as much as 400,000 barrels a day each month from August until all of its halted output has been revived. The announcement of rising oil supply in the market has resulted in sharp fall in crude oil prices to around $71 a barrel.

A dealer with a large state-owned bank said the fall in oil prices had lowered inflation concerns, which boosted the appetite of traders in the market. “Easing inflation worry is not just solely attributed to fall in crude oil prices, but certainly global sentiments and fall in overall commodity prices play a vital role,” Iyer said.

On Friday, the US 10-year Treasury yields remained near 1.3% after strong retail sales data, but fears over rising inflation continue to affect the sentiment.

Meanwhile, the new 10-year benchmark bond 6.10%-2031 is expected to show some movement after fresh supply by the Reserve Bank of India (RBI) in the upcoming weekly bond auction on July 23. The central bank after market hours on Monday announced auction of government securities worth Rs 26,000 crore.

Of the total amount, the RBI will raise Rs 14,000 crore through sale of 6.10%-2031 bonds. The central bank will also raise Rs 3,000 crore and Rs 9,000 crore by selling 4.26%-2023 and 6.76%-2061 bonds, respectively.

“We expect the new 10-year to remain in the range of 6.05-15% in the near term as global market conditions remain favorable (lower US Treasury yields and crude oil), domestic inflation peaks and near-term supply concern eases,” Upasna Bhardwaj, senior economist, Kotak Mahindra Bank, said.

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