Mumbai: Federal bond yields rose slightly on Tuesday, 4 March, from two-week lows as investors made room for fresh supplies and fretted over rising price pressures from food and oil.
At 10:08am, the 10-year federal yield was at 7.56%, three basis points higher than Monday’s close, which was its lowest since 18 February, according to Reuters data.
The Reserve Bank of India will auction Rs43.5 billion ($1.1 billion) of bonds for for state governments on Friday.
“The auction announcement and expectations that inflation may rise in coming weeks kept traders cautious,” a trader with a foreign bank said.
Inflation in India is still a threat because of high food prices, the Finance Minister said on Monday, as he promised to consider policy intervention if growth slowed in any industrial sector of the $1 trillion economy.
Wholesale prices inflation hit a eight-month high of 4.89% in mid-February, just below the central bank’s fiscal year target of 5%.
Oil hit a record of $103.95 on Monday as the bullish momentum for commodities remained intact and ahead of an Opec meeting expected to leave output unchanged.
India imports 70% of its crude, and high oil prices could prompt the government to raise state-set fuel prices. If it decided to keep subsidising retail prices, the government might have to issue more debt to cover rising compensation costs.
Traders said bond yields were likely to be contained until the borrowing calendar for the fiscal year beginning in 1 April was announced.
In its budget for 2008/09, the government said it would borrow Rs1.45 trillion of bonds next fiscal year, lower than this fiscal year’s Rs1.56 trillion.