Mumbai: Indian federal bond yields eased on Tuesday as lower oil prices helped calm inflation concerns, but heavy debt supplies this week would limit a further drop in yields.
At 10:25 a.m, the 10-year benchmark bond yield was at 8.45%, off a low of 8.43% and five basis points lower than Monday’s close of 8.50%.
“Yields are lower mainly tracking lower crude prices, but the rally is getting overdone. Yields should stabilise around 8.43% levels,” said Prasanna Patankar, senior vice president at STCI Primary Dealers.
“The yeilds are likely stay in a range of 8.43% to 8.5% through the session,” he added.
Oil prices fell toward five-month lows on Tuesday, resuming a near two-week slide as a resurgent US dollar drove investors away from commodities and Opec appeared set to sit tight on production policy.
Crude was trading just above $105 a barrel, extending a slide from a record high above $147 in mid-July. India imports about 70% of its oil and high prices had pushed inflation into double digits.
Dealers said cash conditions had improved but sentiment was cautious ahead of fresh debt supplies this week.
Overnight call rates, a barometer for cash supplies in the inter-bank money market, were at 8.40/50%, lower than above 9% in recent weeks.
The central bank is selling Rs90 billion ($2 billion) of treasury bills on Wednesday and another Rs80 billion ($1.8 billion) worth of bonds on Friday.
Banks and companies will also start making payments toward quarterly advance taxes during the next week, which is likely to pressure cash supplies in the system.