Mumbai: Indian federal bond yields eased on Wednesday as oil prices pulled back from record highs, but concerns over spiralling inflation and tight cash conditions may limit a further drop.
At 10 a.m, the 10-year benchmark bond yield was at 8.28%, trudging down from 8.30% hit in early trade, and two basis points lower than Tuesday’s close. It had touched 8.31% this week, its highest since mid-June 2007.
“Crude has retraced somewhat and that’s why there is some buying interest,” a dealer with a state-owned bank said.
“But further upside (to prices) is very much capped as selling pressure will always be there due to expectations for inflation going up further,” he said.
Oil was trading just below $132 a barrel, off the record high of $139.12 hit on Friday.
Last week, the government raised state-set fuel prices and analysts say more increases could be in store because domestic prices of petrol and diesel have hardly kept pace with high global crude prices.
Annual inflation hit a 3-1/2-year high of 8.24% on May 24.
Dealers said they would await the inflation data on Friday before taking fresh positions and analysts expect data later this month to show it rose to 13-year highs above 9% in early June.
The overnight call money rate was quoted just above the central bank’s repo rate of 7.75%, which is its short-term lending rate, indicating tight conditions ahead of payment of advance tax by companies this weekend.