Bond Yields Jump as Crude Remains Above $100

Bond Yields Jump as Crude Remains Above $100​

The benchmark 10-year bond yield was trading at 6.93 percent on March 27 as Iran and crude worries weighed on sentiment.

Bond Market Reaction​

The benchmark 10-year yield climbed to 6.93 percent, up from its previous close of 6.87 percent. Currency and fixed income markets were closed on March 26 for a public holiday.

US President Donald Trump had said that he is delaying planned strikes on Iranian power plants, although Iran has rejected a proposal saying that the deal was ‘one-sided’. The pause in attacks did not do much to prop up investor sentiment.

As a result, Brent crude prices have remained elevated above $100 per barrel. Higher oil prices will stoke inflationary pressures, which will in turn harm bond yields. The Indian crude basket is averaging nearly $150 per barrel.

“The discount which India was getting has now turned into a premium. So, the chances of a spike in inflation have kept the yields higher,” analysts from Finrex Treasury Advisors said.

Domestic Debt Auction​

Domestically, traders are looking forward to a state government debt auction later in the day, which will see funds worth Rs 42,941 crore being raised. This adds to the nearly Rs 12.31 lakh crore raised during the financial year.

Rupee Declines​

The rupee opened 30 paise lower to sink to a new low of 94.28 against the dollar, the first time it declined below 94. The currency ended March 25 at Rs 93.

“While the global impact of the conflict suggests there is increasing pressure for de-escalation, the path to that outcome remains unclear. If tensions ease meaningfully, the rupee could see a recovery of around Rs 1 to Rs 1.5. But until there is clarity, volatility is likely to persist,” Amit Pabari, managing director at CR Forex Advisory, said.