Mumbai: Indian federal bond yields fell after hitting three-week highs on Friday, 22 August, as some traders and banks found the level attractive but wariness over high crude prices could check a further drop.
At 11am, the yield on the 10-year benchmark bond was at 9.19%, compared with Thursday’s close of 9.21%. In early trade it hit 9.24%, its highest since 1 August.
“The prices have recovered from the lows because at every level some banks and traders are buying but I don’t think this can be sustained,” a dealer with a state-run bank said.
“Crude has gone up drastically and inflation is not at all comforting,” he said.
Oil, India’s largest import, was trading above $121 a barrel as investors’ appetite was rekindled by a slump in the dollar and mounting tension between the US and Russia.
Data published after market hours on Thursday showed annual inflation in early August at above 12.6 percent, the highest since the current series became available in 1995, and analysts said it could hit 14%.
The government last raised prices of diesel, gasoline and cooking gas in early June, pushing inflation to double digits.
To curb inflation pressures, the central bank has aggressively tightened its policy since June. Last month, it raised the repo rate by 50 basis points and said it was also raising banks’ reserve requirement by 25 basis points from 30 August.
Traders said they would also be watching the cut-off price at the auction of Rs6,000 crore ($1.4 billion) of government bonds later in the day.