Indian bond yields up on high oil, tight cash

Indian bond yields up on high oil, tight cash

Mumbai: Indian federal bond yields rose on Tuesday, 23 September, as high oil prices and tight cash conditions dampened sentiment while expectations there could be more supplies in coming weeks also curbed appetite.

At 10:30am, the 10-year benchmark bond yield was at 8.49%, compared with Monday’s 8.48%, which was its highest close since 9 September, according to Reuters data.

“Bonds would closely follow oil prices in coming days as there are no signs of inflation softening yet," a dealer with a state-run bank said.

Oil was hovering around $109 a barrel, after tumbling to a seven-month low below $91 in mid-September, with the recovery underpinned by a rescue plan unveiled by the United States for its battered financial sector.

This has rekindled inflation concerns as India imports about 70% of its crude and high prices could prompt the government to increase state-set fuel prices. Annual inflation is now running above 12%.

Cash conditions remained tight. Overnight call money rates were at 12%, lower than Monday’s close of 14-14.5%, but way above the RBI’s short-term lending rate of 9%.

Dealers were also wary of taking fresh positions as the government was expected to borrow heavily in the second half of the 2008-09 fiscal year to fund an increase in salaries of government employees as well as to pay for subsidies.

The auction calendar for the October to March period is expected to be announced by the end of this month.