Indian bonds give up day's gains as oil price spike adds to rate hike fears
TLT•Indian government bonds ended lower, with the benchmark 2036 bond yield rising to 7.3920% from 7.3789%, as higher oil prices fueled rate-hike fears. Brent crude hovered around $108 a barrel, while India's September consumer inflation accelerated to 5.54%.
1. Bonds reverse gains
Indian government bonds gave up early gains and ended lower as rising oil prices fanned inflation concerns and bets on a domestic rate hike. The benchmark 6.94% 2036 bond yield ended at 7.3920%, up from 7.3789% in the previous session; it had earlier fallen to 7.35% as lower Treasury yields prompted value purchases.
2. Oil and inflation concerns
Brent crude hovered around $108 a barrel after reaching $110 on Friday, its highest since May. India's 10-year benchmark yield has risen for nine consecutive weeks, gaining 62 basis points, while September consumer inflation accelerated to 5.54%; economists said it was on track to exceed 6% in October, the upper end of the central bank's tolerance band.
3. Rate outlook
Puneet Pal, head of fixed income at PGIM India Mutual Fund, said the Reserve Bank of India's next policy move could be a 50-basis-point rate hike, with the timing depending largely on the rupee's trajectory and crude oil prices. India's overnight indexed swap rates ended little changed.
