By Manish M Suvarna
Yields on benchmark bonds have risen almost 9 basis points in the last three days, tracking a sharp rise in US Treasury yields after the Federal Reserve indicated sooner-than-expected tapering of its bond purchases, and with crude oil prices hitting $80/barrel.
On Tuesday, the benchmark 6.10%-2031 bond yield ended at 6.2281%, as against the 6.2087% close on the previous trading session. The yield on the benchmark bond on September 23 was hovering around 6.1397%.
“Oil is on a boil, US yields have risen post the latest FOMC meet, and domestically the Reserve Bank of India seems reluctant to let core system liquidity rise further (with obvious implications for its bond-buying programme). The global negatives seem to have won the last few days, thereby leading to some recent rise in yields,” Suyash Choudhary, head – fixed income, IDFC AMC, said.
However, a further rise in yields has been capped on positive domestic cues as the government has kept its market borrowing in the second half unchanged at just over Rs 5 lakh crore and has not announced any additional borrowing.
The central government on Monday said it would borrow Rs 5.03 lakh crore between October and March 2022. The projection also factors in requirements for the release of the balance amount to states on account of back-to-back loan facility in lieu of GST compensation during the year. The finance ministry had planned to borrow 60% of `12.05 lakh crore in the first half, but the effective borrowing stood at Rs 7.02 lakh crore.
“The borrowing calendar has no additional supply of bonds, that seems to be in favour of the market. The second-half borrowing will factor in compensating states for a revenue shortfall caused by the pandemic,” said Kunal Sodhani, AVP, Global Trading Center, Shinhan Bank India.
US Treasury yields jumped in the last three trading sessions as investors across the globe became worried about the Fed’s comments, which indicated quicker-than-expected tapering and a sooner-than-expected rate hike. The US treasury notes have risen more than 15 basis points in the last three trading sessions, while on Monday they were hovering around 1.48%.
Rising crude oil prices are also weakening the sentiments of traders in the bond market. Brent crude oil prices have risen for the fifth straight day and touched the $80-a-barrel mark on Tuesday due to tight supply and increasing demand as economic activities are picking up across the globe.
By the closing of market hours, Brent crude oil prices were trading at $80.02 a barrel for the contract maturing in November.
Market participants said if oil prices continue to rise along with US Treasury yields, a further rise in yields on benchmark bonds cannot be ruled out. “The broader range for 10-year G-Sec now seems to be 6.10%-6.35%,” Sodhani said.