Mumbai: Indian federal bond yields eased on Monday, 28 July, after global oil prices had fallen to a seven-week low, but investors may pare positions ahead of an expected interest rate rise at a monetary policy review on Tuesday.
At 10:10am, the benchmark 10-year bond yield was at 9.09%, below Friday’s close of 9.15%. Earlier this month, it had hit a seven-year high of 9.55%.
“It is unlikely to stay at current levels, as nobody would like to sit on heavy positions before the policy,” a dealer with a state-run bank said.
The dealer said the yields may spike to 9.25-9.30% if the RBI raised its key lending rate by 50 basis points.
A Reuters poll last week showed a majority of economists expected an increase in its repo rate, the rate at which it lends cash to banks, by 25 or 50 basis from 8.5%.
US crude was trading below $124 a barrel on Monday, having fallen as low as $122.50 on Friday, well below record peaks above $147 hit earlier this month.
A sustained easing of oil prices could reduce pressure on the government to raise state-set fuel prices once again. A sharp increase in prices of diesel, petrol and cooking gas last month pushed inflation into double digits.
Annual wholesale price inflation was 11.89% in mid-July, and dealers said further monetary tightening looked certain as the central banks tries to rein in price pressures.
India’s major cities were put on high alert on Sunday, with fears of more attacks after at least 46 people were killed in two days of bombings. Dealers said the security concerns had not unsettled debt markets on Monday.