Benchmark bond yields rise as crude oil inches higher

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August 24, 2021 1:45 AM

“Rising crude oil and central bank's minutes of the August monetary policy put pressure on bond yields today, hence, we have seen a rise in yields on the benchmark bond,” a dealer with a private bank said.

By the closing of the Indian bond market, Brent crude oil prices were trading at $67.27 a barrel, which was up $2.09 or 3.21%, for the contract maturing in October.By the closing of the Indian bond market, Brent crude oil prices were trading at $67.27 a barrel, which was up $2.09 or 3.21%, for the contract maturing in October.

The yield on the 10-year benchmark 6.10%-2031 bonds rose on Monday due to an uptick in crude oil prices and a rise in US Treasury yields. The yield ended at 6.2428%, marginally higher than the previous trading session.

“Rising crude oil and central bank’s minutes of the August monetary policy put pressure on bond yields today, hence, we have seen a rise in yields on the benchmark bond,” a dealer with a private bank said.

Bond dealers expect yields on benchmark bonds to rise in coming days owing to supply pressure and ahead of the Jackson Hole event. “We expect the new 10-year paper to remain in the 6.20-6.30% in near term,” Upasna Bhardwaj, senior vice president, Kotak Mahindra Bank, said in a report.

Brent crude oil prices, which were trading lower last week, rose on Monday, though the market was concerned over the rising covid cases in major oil-importing countries like the US and China. These nations have imposed new restrictions to curb the spread of the Delta variant.

By the closing of the Indian bond market, Brent crude oil prices were trading at $67.27 a barrel, which was up $2.09 or 3.21%, for the contract maturing in October.

Market participants said the minutes of the August policy reiterated that members were uncertain on growth as well as inflation and hence rates had been kept unchanged with an accommodative stance. Among members, Jayanth Varma voted against the stance.

“While we do not expect any aggressive policy normalisation given the uncertainty associated with further Covid cases, we continue to expect incremental liquidity normalization measures before a reverse repo rate hike in December,” Kotak Mahindra Bank said in a report.

Meanwhile, the US Treasury yields rose on Friday on concerns of rising Covid-19 cases and volatile stock markets. The yield on the 10-year US Treasury note was at 1.26%, 1 basis point higher than the previous close.

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