The yield on the benchmark government bonds eased from 7.50% levels hovering on Monday on a sharp drop in international crude oil prices but rose to close at the previous day's level as dealers eyed inflation data for further cues.
At 1:30 pm on Wednesday, the yield on the new benchmark 7.26 percent-2032 bond fell 10 basis points to 7.38 percent and the old benchmark 6.54 percent-2032 bond yield eased 9 basis points to 7.42 percent, according to the CCIL NDS - OM trades.
While, the yield on the 7.26%-2032 bond closed at 7.4348%, as against 7.4257% closed on Tuesday, and the 6.54%-2032 bond yield ended at 7.4775%, as compared to 7.4568% ended on the previous trading session.
"The slight recovery in yields is largely due to short covering on the back of easing crude and US yields. There was also some talk about buying support coming in as a large housing finance company entered into hedging trades against its fresh bond issuances," said Anand Nevatia, Fund Manager at Trust Mutual Fund.
Between September 30 and October 10, yields on these benchmark securities rose 14-16 basis points, pressured by the RBI rate hike, the non-inclusion of Indian bonds in the global bond index, and high crude prices.
A benchmark government bond is a debt security issued by the central government with a residual maturity of 10 years against which the performance of other bonds can be measured.
Mahendra Kumar Jajoo, Chief Investment Officer - Fixed Income at Mirae Asset Investment Managers (India) Pvt Ltd, said traders may have assessed that the recent spike in crude oil prices and global yields may retrace somewhat. Both the domestic and US inflation prints due this week may also give hints of some easing in the coming days, he said.
Easing crude oil prices
The benchmark Brent crude oil prices have eased in the last three days after the tightening of Covid-19 restrictions in the world's second-largest oil market China and the growing risk of a global recession. At 1:30 pm, Brent oil price was trading at $94.43 per barrel.
“The US WTI crude prices corrected from their recent high of $93.64 to below $90 an ounce level this week. Growing concerns over recession in key economies and an increase in new Covid-19 cases in China raised worries over global demand,” said Hareesh V, Head of Commodities at Geojit Financial Services.
China has imposed fresh lockdowns and travel restrictions across the country after an uptick in Covid-19 cases in the country. As per media reports, China’s national health commission on October 12 reported 1,760 new local infections for the previous day, including cases from cities including Beijing, Shanghai, Shenzhen, and Xian.
Also read: Corporate bond issuance rises 49% on-month in September to Rs 82,378 crore
The outlook
Market participants believe that bond yields will move in a tight range because traders are expected to take cues from the consumer price inflation print of September and the Monetary Policy Committee minutes.
"Going ahead, we may see Indian bond yields moving sideways in a tight range around 7.5 percent as the monetary policy cycle is nearing its peak," said Pankaj Pathak, Fund Manager - Fixed Income at Quantum Asset Management Co Pvt Ltd.
"Markets would await the CPI prints and MPC minutes to take a further cue," Nevatia added.
India will announce its inflation data for September today, while data for the US will be released on October 13. Bond yields will also take cues from movement in the US Treasury yields.
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