Mumbai: Indian federal bond yields were barely moved near one-month highs on Wednesday, 4 June, as investors trimmed positions ahead of an expected increase in local fuel prices, a move that will accelerate inflation.
At 9:36am, the 10-year bond yield was 8.12%, unchanged from the close on Tuesday when it hit a peak of 8.13%, its highest since 29 April, according to Reuters data.
The 10-year yield has risen 2 basis points so far this week.
Total volume was a thin Rs50 million ($1.1 million) on the Reserve Bank of India’s electronic dealing platform as dealers awaited the quantum of the fuel price increase.
“Bonds have been getting sold off for sometime now and the selloff will continue when the price hike comes in as traders price in expectations on the future trends in inflation and interest rates,” said a senior dealer at a foreign bank.
India is expected to raise prices of petrol by about 10% and diesel by 6% on Wednesday, Indian newspapers reported, ending nearly two weeks of debate over how best to bail out state oil firms.
A fuel price rise would increase the annual inflation rate, already at 8.1% in mid-May, its highest in more than three years. Higher inflation may prompt a monetary policy response.
The RBI will auction Rs40 billion of bills later in the day and Rs100 billion of bonds on Friday.