Bond yields edge lower amid stable oil prices

Bond market news: Indian government bond yields saw a marginal decline in early trading on Tuesday, supported by steady oil prices that boosted investor confidence.

As of 10:00 am, the benchmark 10-year yield stood at 7.1725 per cent, slightly lower from its previous close at 7.1890 per cent. This followed a spike to 7.2447 per cent on Monday, marking the highest level in over three months.

According to a trader from a state-run bank, the market's primary concern lies with oil prices rather than Treasury yields. The stabilisation of oil prices has reignited bullish sentiment among investors.

Monday saw a slip in bond yields as oil prices dipped, with traders perceiving minimal immediate risk to the supply chain due to the ongoing conflict in the Middle East.

In the Asian market, the benchmark Brent crude contract, which had breached $92 per barrel earlier this month, was trading around $87 per barrel.

Given India's significant dependence on oil imports, fluctuations in oil prices directly impact retail inflation. Elevated prices could pose challenges for the Reserve Bank of India in achieving its inflation target.

The central bank has indicated that rate cuts will only commence once inflation consistently aligns with its 4 per cent target.

In other developments, Indian states are set to raise Rs 12,000 crore through bond sales later in the day, marking a reduction from the planned quantum for the third consecutive week. This will be followed by the central government's supply of Rs 32,000 crore on Friday.

Meanwhile, US Treasury yields remained relatively stable, with the 10-year yield hovering around the 4.60 per cent mark. Recent statements from Federal Reserve officials have indicated no immediate urgency to implement rate cuts.

Investors are currently factoring in the possibility of approximately 40 basis points (bps) of rate cuts by the Fed by the year-end, a notable decrease from the more than 150 bps anticipated at the beginning of 2024, as per CME's FedWatch Tool.

(With Reuters inputs.)