India bond yields seen rising tracking oil prices; H1 borrowing plan weighs

The 10-year benchmark 7.26% 2032 bond yield is expected to be in a 7.33%-7.38% range on Monday, after closing at 7.3180% on Friday.

india bond yields
A man counts Indian currency notes inside a shop in Mumbai, India. (Representational image: Reuters)

Indian government bond yields are expected to rise in the first trading session of the new financial year, tracking a spike in oil prices, while the government’s borrowing plans for April-September weigh on sentiment. The 10-year benchmark 7.26% 2032 bond yield is expected to be in a 7.33%-7.38% range on Monday, after closing at 7.3180% on Friday.

The yield fell 14 basis points in March, its first monthly fall since November, but rose 48 bps in fiscal 2023, and recorded its third consecutive rise. The sharp jump in oil prices would not go unnoticed, and yields should continue their rising trend, a trader said. “The borrowing programme is also marginally negative for duration, which could accentuate the yield moves.”

Oil prices jumped on Monday, jolted by a surprise announcement by the Organization of the Petroleum Exporting Countries and their allies including Russia, known as OPEC+, to cut production further in an effort to support market stability. The group, which was expected to maintain its earlier decision to cut output by 2 million bpd until December, announced production cuts of about 1.16 million bpd on Sunday.

The pledges bring the total volume of cuts by OPEC+ to 3.66 million bpd according to Reuters calculations, equal to 3.7% of global demand. The benchmark Brent crude futures rose to $86.44 per barrel, their highest levels in nearly four weeks, and elevated oil prices could impact India’s inflation trajectory, as the nation is one of the largest imports of the commodity.

Sentiment also weighed on the government’s plans to borrow 8.88 trillion rupees ($107.81 billion) – slightly above expectations – via bonds in April-September, which constitutes about 57.6% of the total 15.43 trillion rupees.

Traders will majorly remained focused on the Reserve Bank of India‘s (RBI) monetary policy decision due on April 6. The RBI will raise the interest rate by 25 basis points and then pause for the rest of the year, according to a Reuters poll of economists, who said the central bank would still maintain its tightening stance. The central bank had raised the repo rate by 250 bps to 6.50% in the previous financial year.

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First published on: 03-04-2023 at 09:33 IST