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India bond yields seen lower on weaker oil, easing inflation

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MUMBAI — Indian government bond yields are likely to trend lower in early deals on Wednesday after a four-day holiday weekend, tracking a fall in oil prices and on easing domestic inflation.

The benchmark 10-year government bond yield is likely to trade in a 7.24%-7.30% band, a trader with a private bank said. The bond yield closed at 7.2894% on Friday. Indian fixed income markets were shut on Monday and Tuesday for holidays.

“Though inflation eased in July, it’s largely along the expected lines. The downward move in oil prices bodes well for inflation outlook, which may lead to some rally in bond prices,” the trader said.

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India’s consumer inflation dipped to 6.71% in July, easing for the third month in a row, helped by a slower increase in food and fuel prices. The figure, published on Friday, was marginally lower than the 6.78% forecast by economists in a Reuters poll.

The reading stayed above the central bank’s upper tolerance range for a seventh consecutive month and is expected to remain elevated in the near term, necessitating more rate hikes in the coming months, analysts said.

Global oil prices dropped, with the benchmark Brent crude contract declining to its lowest in six months on Tuesday, as economic data spurred concerns about a potential global recession. The contract ended at $92.34 per barrel on Tuesday, closer to a level last seen before Russia invaded Ukraine.

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India imports bulk of its crude oil requirement and falling oil prices could lead to lower inflation.

Market sentiment is also likely to be supported by the central government’s announcement of a new 10-year bond for this week.

New Delhi will conduct the sale of bonds for 330 billion rupees ($4.17 billion) on Friday. The auction includes a new 10-year bond, which will replace the existing benchmark note in coming months.

The new 10-year bond is expected to draw strong investor demand and realign the entire yield curve, analysts said.

“The new 10-year bond is expected to be priced 7-10 basis points lower than the current benchmark levels and the entire yield curve may be lowered by few basis points initially post new bond auction,” said Venkatakrishnan Srinivasan, founder and managing partner at debt advisory firm Rockfort Fincap. ($1 = 79.1950 Indian rupees)

KEY INDICATORS: ** Brent crude futures up 0.1% at $92.46 per barrel ** Ten-year U.S. note yield at 2.8131% ** RBI to auction 210 billion rupees of 91-day, 182-day and 364-day Treasury Bills (Reporting by Dharamraj Lalit Dhutia; Editing by Subhranshu Sahu)

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