Updated April 19th, 2024 at 10:45 IST

Indian bonds under pressure: Oil spike, debt sale, and US rate worries

New Delhi aims to raise Rs 24,000 crore through bond sales, including the issuance of a new 40-year security.

Reported by: Business Desk
Government bonds | Image:Shutterstock
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Bond market news: Government bond yields surged in early trading on Friday, with the benchmark yield reaching its highest level in over three months, driven by a rebound in oil prices. Additionally, investor sentiment faces scrutiny as new debt supply enters the market, testing appetite amidst escalating geopolitical tensions.

As of 10:00 am, the yield on the benchmark 10-year bond IN071833G=CC stood at 7.2136 per cent, up from its previous close of 7.1905 per cent. Earlier in the day, the yield peaked at 7.2274 per cent, marking its highest level since January 8.

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New Delhi aims to raise Rs 24,000 crore through bond sales, including the issuance of a new 40-year security.

"Bulls have taken a back seat as we are entering into territories that were unheard of some time ago," remarked a trader with a private bank. "During geopolitical tensions, there is no sanctity of any particular level, so caution should prevail."

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Oil prices surged on Friday in response to reports of Israeli missiles striking a site in Iran, igniting concerns over potential disruptions in Middle East oil supply chains.

While an Iranian official confirmed the explosions, attributing them to the activation of Iran's air defense systems, they stated that no missile attack was directed at Iran.

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The benchmark Brent crude contract hovered near the $90 per barrel mark. Elevated commodity prices pose a significant challenge for India, impacting local retail inflation and potentially complicating the Reserve Bank of India's goal of achieving a 4 per cent target, potentially delaying monetary policy easing.

In contrast, US yields retreated from recent highs, albeit the 10-year yield US10YT=RR remained around the critical 4.55 per cent mark.

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Investor expectations regarding the timing and magnitude of rate cuts in the United States for 2024 have diminished. Futures markets are now pricing in the possibility of less than 50 basis points (bps) of cuts by the end of this year, according to CME's FedWatch Tool.

(With Reuters inputs.)
 

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Published April 19th, 2024 at 10:45 IST