Indian bonds may extend rally as cheaper oil eases inflation worries

what happened

According to Reuters, Indian government bonds could rally further at the start of the new week. Cheaper oil and falling US Treasury yields are supporting investor sentiment, while attention stays on inflation data due this week in India and the United States. A private-bank trader said the benchmark 6.94% 2036 bond yield is likely to hover between 7.15% and 7.20%.

The 10-year yield posted its steepest weekly drop since October 2019. The move followed a Democratic victory in the US midterm elections, which sent crude down more than 16% for the week, its sharpest slide since April 2020, as hopes grew for a resolution to the Iran war.

why it matters

Crude matters greatly for India, an import-dependent economy, because prices feed into the rupee, inflation and government finances. Traders are watching October inflation, which a Reuters poll expects to have risen to 5.93% from 5.54% in September, and how it may shape Reserve Bank of India policy. The oil retreat has tempered expectations of aggressive tightening, and short-term overnight index swap rates also fell.

market impact

Indian government bonds: lower oil and US yields support prices

• ▲Indian government bonds pressure up — lower oil reduces inflation risk and pulls yields down
• ▲US Treasuries pressure up — hopes for an end to the Iran conflict lowered yields

tags

instruments