India bonds dip, facing sustained oil rise, macro risks
Indian government bonds are falling. Oil prices remain high, fueling inflation worries. This impacts India's economic growth and interest rate expectations. The rupee has hit a new low against the dollar. The Reserve Bank of India is intervening t...
By Reuters |
ETMarkets.com
Indian government bonds drifted lower in early Friday trade as oil held above $100 a barrel with no relent in Iran war-related supply disruptions, stoking inflation fears and clouding India's growth and rate outlook.
The benchmark 6.48% 2035 bond yield edged upwards to 6.6744% at 11:15 a.m., after ending at 6.6666% on Thursday. Bond yields move inversely to prices.
Risk aversion deepened globally as leaders of Iran, Israel and the United States all voiced defiance and vowed to fight on as the Middle East war approached the two-week mark on Friday.
With no end to hostilities in sight, traders are treading cautiously in oil-import-dependent India. The rupee also hit another record low on Friday at 92.4150 per dollar.
"Risk appetite is subdued currently, but with RBI interventions capping yields, we will buy opportunistically," a private-bank trader said.
The benchmark 10-year yield continues to hover near levels it traded at before the start of the war, supported by the Reserve Bank of India's open market operations (OMOs) and likely secondary market purchases.
An investor cohort comprising the RBI and other long-term investor has net purchased bonds worth 98 billion rupees in the secondary market over the previous two trading sessions, CCIL data showed. The central bank conducted 500 billion rupees of OMOs earlier this week, and will buy a similar quantum later in the day.
If the conflict prolongs and the price of oil averages at $90/barrel, it could push headline inflation up to 5-5.5% for the fiscal year ending 2027, analysts at HDFC Bank wrote in a note, which is 70-100 basis points above their earlier forecast.
Investor fright was evident in the swaps market on Friday, as the one-year OIS was up 5 basis points at 5. 81%, while the two-year rate rose 6.5 bps to 6.025% and the five-year rate climbed 5 bps to 6.3925%.
The benchmark 6.48% 2035 bond yield edged upwards to 6.6744% at 11:15 a.m., after ending at 6.6666% on Thursday. Bond yields move inversely to prices.
Risk aversion deepened globally as leaders of Iran, Israel and the United States all voiced defiance and vowed to fight on as the Middle East war approached the two-week mark on Friday.
With no end to hostilities in sight, traders are treading cautiously in oil-import-dependent India. The rupee also hit another record low on Friday at 92.4150 per dollar.
"Risk appetite is subdued currently, but with RBI interventions capping yields, we will buy opportunistically," a private-bank trader said.
The benchmark 10-year yield continues to hover near levels it traded at before the start of the war, supported by the Reserve Bank of India's open market operations (OMOs) and likely secondary market purchases.
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An investor cohort comprising the RBI and other long-term investor has net purchased bonds worth 98 billion rupees in the secondary market over the previous two trading sessions, CCIL data showed. The central bank conducted 500 billion rupees of OMOs earlier this week, and will buy a similar quantum later in the day.
If the conflict prolongs and the price of oil averages at $90/barrel, it could push headline inflation up to 5-5.5% for the fiscal year ending 2027, analysts at HDFC Bank wrote in a note, which is 70-100 basis points above their earlier forecast.
RATES
Investor fright was evident in the swaps market on Friday, as the one-year OIS was up 5 basis points at 5. 81%, while the two-year rate rose 6.5 bps to 6.025% and the five-year rate climbed 5 bps to 6.3925%.
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Analysts however say OIS rates may be overstating the likely impact the of Iran war on domestic monetary policy. ($1 = 92.3060 Indian rupees).Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
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