Mumbai: Indian federal bond yields rose sharply to one-year highs, as traders braced for an increase in policy rates to cool price pressures after a spike in oil prices.
At 10 am, the 10-year benchmark bond yield was trading at 8.3%, its highest since mid-June 2007. It closed at 8.23% on 6 June.
“The fundamentals are against the market. There is no question of riding against it,” said K. Ramkumar, head of fixed income at Sundaram BNP Paribas.
“I think it is only a question of the RBI (Reserve Bank of India) postponing the inevitable. It has to be done before the policy,” he said, referring to the possibility of an increase in interest rates.
The RBI’s next policy review is on July 29. It has kept its main short-term lending rate unchanged at 7.75% since March 2007.
In its last policy review in April, it raised banks’ reserve requirement by 25 basis points to quell inflation stemming from surplus cash in the banking system.
Annual inflation was at 8.24% in the 12 months to May 24, its highest in 3-“ years. Last week, the government raised state-controlled fuel prices and analysts expect inflation to hit 13-year highs above 9% in early June.
Oil was trading just below $138 a barrel after its biggest surge ever in the previous session.
India is heavily dependent on imported oil and high global prices could pressure the government to raise fuel prices once again, dealers said.