Mumbai: Indian federal bond yields edged up on Tuesday, 16 October, as high oil prices rekindled concerns of price pressures even though wholesale price inflation has fallen to its lowest levels in almost five years. Crude hit record highs above $86 a barrel on signs that Turkey could launch an attack on Kurdish separatists in Iraq.
At 9:20am (0340 GMT), the 10-year bond yield was at 7.91%, higher than Monday’s close of 7.90%.
“This is a knee-jerk reaction to the oil situation, although the government is unlikely to increase administered anytime soon,” a trader with a primary dealer said.
India imports about 70% of its oil needs and high prices could put pressure on the government to raise state-set prices of petrol and diesel.
The last time the government revised fuel prices was in February, when it cut prices for the second time in three months. Inflation hit a two-year peak of 6.69% in January.
Annual inflation fell to 3.23% in mid-September, its lowest since December 2002, and was running at 3.26% at the end of the month.
Dealers said the government was unlikely to raise fuel prices in 2007 as state elections in Gujarat and Himachal Pradesh were due over the next two months.
Auctions of bonds and bills this week was also keeping sentiment subdued, they said.
The Reserve Bank of India (RBI) is selling Rs100 billion ($2.5 billion) of market stabilization scheme (MSS) bonds on 18 October to drain excess cash in the banking system. It is also selling Rs60 billion of treasury bills on Wednesday.