India govt bond yields edge lower as crude oil prices, US peers drop

Indian government bond yields fell on Wednesday as a decline in US peers and oil prices from their recent highs improved investor sentiment.

The benchmark 10-year bond yield closed at 7.3408%, after finishing at 7.3769% in the previous session.

Oil prices fell, with Brent crude falling well below the $90 per barrel mark, as worries about slowing European demand offset worries about supply disruptions in the Middle East due to the conflict between Israel and Hamas.

“In terms of the global story, tensions have not escalated, they are just on the surface, waiting to evolve in any direction,” said Anitha Rangan, economist at Equirus Group.

Falling oil prices could alleviate some of the inflation pressure for net importers like India. Local inflation has exceeded the 6% cap in five of the past 12 months, but has remained between 4% and 6% in the remaining seven months, including an easing to around 5% in September.

India’s Monetary Policy Committee’s decision to strengthen the 4% retail inflation target follows a return of inflation to the 2%-6% comfort zone, but does not necessarily mean interest rates will remain higher for longer, two outsiders said members of the committee told Reuters.

Meanwhile, US yields fell, with the 10-year yield falling more than 20 basis points (bps) after rising above 5% on Monday as investors capitalized on the recent sell-off.

The 10-year yield stood at 4.86%, after reaching a more than 16-year high of 5.02% on Monday.

Market participants also continue to wait for any progress on the Reserve Bank of India’s debt sale plan as the RBI will start selling bonds in the open market once government spending picks up and there is an improvement in sustainable liquidity surplus, according to Reuters.