Bond yields climb 2 basis points as Brent crude holds above $100  

Reserve Bank of India

Indian sovereign bond prices edged lower on March 16, as the Iran war entered its third week and crude staying above $100 a barrel, stoking inflation fears.

The benchmark 10-year bond yield was trading at 6.69 against 6.67 percent in the previous session.

The benchmark Brent crude was trading at nearly $106 a barrel, up nearly 40 percent since the war broke out on February 28.

With the United States-Israel war on Iran now spread to oil-rich West Asia, sentiment remains fragile globally. The Strait of Hormuz, a key route through which 20 percent of global energy supplies move, continues to be disrupted.

Higher oil costs can spike inflation, which can send yields climbing.

India’s inflation print for February came in at 3.21 percent, up from 2.75 percent in January, even though it remained within the central bank’s 2 percent and 6 percent tolerance band.

The Reserve Bank of India (RBI) has been buying bonds in the secondary markets and also conducting open market operations to purchase government securities to pump in more liquidity and bring down the yields below 6.7 percent.

The rupee, which sank to a new low in the previous session, opened a bit higher against the dollar at Rs 92.42. The rupee sank to new of Rs 92.48 on March 13 but apred some of the losses to  end the day at 92.45.

The Reserve Bank of India’s has been aggressively intervening in the market to protect the rupee. According to the latest central bank data, India's forex reserves fell to $716.81 billion for the week ended March 6, down from $728.49 billion the previous week.