India bonds end flat as oil woes come up against short covering
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Indian government bonds faced volatility as oil price hikes raised inflation concerns and affected market sentiment. The 6.94% 2036 bond yield fluctuated but ended slightly unchanged as traders reacted to market conditions. Elevated crude prices have increased worries about inflation, a wider fiscal deficit, and slower economic growth for India. The rupee weakened further against the dollar, prompting fears of aggressive policy tightening by the Reserve Bank of India.
Indian government bonds whipsawed on Wednesday as oil-driven inflation concerns pushed prices lower before short covering pulled them off lows.The benchmark 6.94% 2036 bond yield traded in a 7.42% to 7.49% range before ending little changed at 7.44%.
The yield failed to hit 7.50% for a second straight session, triggering a bout of short covering, traders said.
Bonds Corner Powered By India bonds sink on oil spike before Fed decision
Indian government bonds experienced a significant decline after a prior rally due to rising oil prices. Brent crude oil prices increased following concerns over supply disruptions in Saudi Arabia. The US 10-year Treasury yield also rose, affecting the attractiveness of Indian debt. Markets are anticipating the Federal Reserve's policy decision and rate outlook, impacting investor sentiment.
Global bond issuance set to grow at slowest pace in five years in 2027, S&P Global Ratings saysIndia benchmark yield falls most in 3 months on value buyingGreece raises €500 million from three-month T-bills, yield risesBritain issues costliest 5-year debt since 2008 before budget Browse all Bonds News withThe 7.50% level on the 10-year yield was a key technical resistance, a foreign-bank trader said.
Still, the recovery lacked conviction as elevated crude prices and the Federal Reserve's policy decision due after market hours kept appetite contained.
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While the Fed is widely expected to hold rates, investors will parse its guidance for signals on the timing and extent of any future easing.
"A December hike is close to fully priced. If the press conference is similar in tone to previous public engagements by (Fed) Chair (Kevin) Warsh he is likely to come across as hawkish," MUFG said in a note.
Brent crude steadied near $115 a barrel as supply anxieties lingered following an attack on Saudi Arabia's largest refinery.
For India, the world's third-largest oil importer, the surge sharpens risks of higher inflation, a wider fiscal deficit and slower growth.
The oil shock has undermined the rupee, which was last at 95.22 per dollar after hitting 94.46 last week. The currency's renewed slide has rekindled fears that the central bank may have to tighten policy aggressively to stabilise it.
The Reserve Bank of India raised the repo rate and shifted its stance earlier this month, hinting at more hikes.
RATES
Overnight indexed swap leapt higher as traders priced in 100-125 bps of rate hikes in the next 12 months.
The one-year OIS rose 4.5 bps to 6.68%. The two-year OIS gained 6.75 bps to 6.74%, while the five-year rose 6.25 bps to 6.8775%.
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Figures reflect the source report and its stated period. This article is for information and is not investment advice.
