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Bond yields seen lower as oil, U.S. yields dip further; rupee eyed

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MUMBAI — Indian government bond yields are expected to trend lower in early trade on Thursday, tracking a further downward move in oil prices as well as U.S. Treasury yields, while traders would also keep a watch on the moves in the local currency.

The benchmark 10-year yield is likely to be in a 7.36%-7.41% band, a trader with a private bank said. The yield ended lower for a third straight session at 7.3870% on Wednesday and has fallen by 10 basis points in the last three sessions.

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“There could be a further push in bond yields as oil and U.S. yields are favoring, but at the current levels, any large incremental fall may not be likely,” the trader said. “Apart from the currency, market also will keenly watch out the U.S. inflation data due today.”

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Global oil prices fell for a fourth day on Thursday on concerns that new COVID curbs in China, the world’s biggest crude importer, will impact fuel demand. The benchmark Brent crude contract has slipped more than 6% in the last three sessions.

Movement in crude oil prices could impact domestic inflation, as India is one of its largest importers. India’s retail inflation data for October is due on Monday. The reading has remained above 6% since January, accelerating to a five-month high of 7.41% year-on-year increase in September.

The U.S. consumer price index data is due later in the day, which will provide more clarity on the Federal Reserve’s interest rate trajectory. U.S. yields fell, with the 10-year yield easing below 4.10%.

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The Indian rupee is likely to open largely unchanged after rising for the last three sessions against the dollar. It ended at 81.4350 on Wednesday, its highest since Sept. 30.

The government bond yield curve could invert, with the benchmark 10-year bond yield easing below those of shorter tenor securities, as the central bank’s rate hike cycle nears its end, said Neeraj Gambhir, group executive and head – treasury, markets and wholesale banking products at Axis Bank.

“We could see the 10-year bond yields go a little lower than the short-term two- to five-year yields. However, till the time we are in a hiking cycle, the flatness will persist.” KEY INDICATORS: ** Brent crude futures was 0.1% lower at $92.55 per barrel, after falling 2.8% in previous session ** 10-year U.S. Treasury yield was at 4.0962% and the two-year note at 4.6005% (Reporting by Dharamraj Dhutia; Editing by Rashmi Aich)

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