Indian Bond Yields Touch Three-Year High on Oil, RBI Tightening
OIL & GAS

Indian Bond Yields Touch Three-Year High on Oil, RBI Tightening

Indian government bond yields rose to their highest level in more than three years on Wednesday as higher crude oil prices and expectations of tighter monetary policy weighed on the debt market.

The benchmark 6.94 per cent 2036 government bond yield stood at 7.3886 per cent at 9:45 am IST, compared with Tuesday’s close of 7.3655 per cent. It touched 7.4112 per cent earlier in the session, its highest level since March 2023. The benchmark yield has risen by around 20 basis points since the Reserve Bank of India raised its policy rate last week.

Bond yields move inversely to prices. Market inputs indicated that traders reduced their positions as oil prices climbed and the central bank signalled a tighter policy environment. Brent crude was trading at around $107 a barrel during Asian hours as markets assessed supply risks linked to the conflict involving Yemen’s Iran-aligned Houthis and Saudi Arabia.

Higher crude prices are significant for India because of the country’s dependence on oil imports. A sustained increase could add to inflationary pressure and weigh on the rupee. Consumer inflation rose to 5.54 per cent in September and is expected to breach the RBI’s upper tolerance band in October. HSBC said a series of higher inflation readings after September could strengthen the case for further rate increases, while tighter policy could support the rupee.

RBI Governor Sanjay Malhotra said in a media interview on Tuesday that the central bank does not generally use monetary policy to safeguard financial stability, although the two objectives cannot be completely separated. The remarks followed measures intended to support the rupee and reduce surplus liquidity in the banking system. The RBI raised the repo rate to 5.50 per cent last week and shifted its policy stance to calibrated tightening, signalling scope for further increases.

Overnight indexed swap rates also moved higher. The 1-year rate was 6.37 per cent, the 2-year rate was 6.55 per cent and the 5-year rate was 6.78 per cent. Traders were also awaiting US inflation data for indications about the Federal Reserve’s interest-rate path after its rate increase last month.

Indian government bond yields rose to their highest level in more than three years on Wednesday as higher crude oil prices and expectations of tighter monetary policy weighed on the debt market. The benchmark 6.94 per cent 2036 government bond yield stood at 7.3886 per cent at 9:45 am IST, compared with Tuesday’s close of 7.3655 per cent. It touched 7.4112 per cent earlier in the session, its highest level since March 2023. The benchmark yield has risen by around 20 basis points since the Reserve Bank of India raised its policy rate last week. Bond yields move inversely to prices. Market inputs indicated that traders reduced their positions as oil prices climbed and the central bank signalled a tighter policy environment. Brent crude was trading at around $107 a barrel during Asian hours as markets assessed supply risks linked to the conflict involving Yemen’s Iran-aligned Houthis and Saudi Arabia. Higher crude prices are significant for India because of the country’s dependence on oil imports. A sustained increase could add to inflationary pressure and weigh on the rupee. Consumer inflation rose to 5.54 per cent in September and is expected to breach the RBI’s upper tolerance band in October. HSBC said a series of higher inflation readings after September could strengthen the case for further rate increases, while tighter policy could support the rupee. RBI Governor Sanjay Malhotra said in a media interview on Tuesday that the central bank does not generally use monetary policy to safeguard financial stability, although the two objectives cannot be completely separated. The remarks followed measures intended to support the rupee and reduce surplus liquidity in the banking system. The RBI raised the repo rate to 5.50 per cent last week and shifted its policy stance to calibrated tightening, signalling scope for further increases. Overnight indexed swap rates also moved higher. The 1-year rate was 6.37 per cent, the 2-year rate was 6.55 per cent and the 5-year rate was 6.78 per cent. Traders were also awaiting US inflation data for indications about the Federal Reserve’s interest-rate path after its rate increase last month.

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