India 10-year yield posts first quarterly rise in 5 on rising oil, US peers

By Dharamraj Dhutia

MUMBAI (Reuters) – Indian government bond yields rose on Friday, with the benchmark yield posting its first quarterly rise in more than a year on the back of a relentless spike in oil prices and U.S. yields.

However, investors anticipate a decline in yield in the upcoming weeks due to improving demand and a surge in overseas inflows following the inclusion of Indian government bonds in the JPMorgan emerging markets index.

The 10-year benchmark 7.18% 2033 bond yield ended at 7.2162% on Friday, leading to 10 basis points increase for the quarter. It had dropped by an aggregate 33 basis points in the last four quarters.

“Rising oil prices and U.S. yields led to a rise in local yields in the quarter, but going ahead I am turning mildly bullish on Indian bonds, and the central bank is also expected to be neutral to dovish at its policy decision next week,” said Rajeev Pawar, head of treasury at Ujjivan Small Finance Bank.

The Reserve Bank of India’s cautious stance on inflation drove the yields higher, while bonds have been under pressure as oil prices and U.S. yields scaled fresh highs.

The Treasury yield continues to scale new highs on bets that interest rates would remain higher for longer, with cuts getting pushed back.

The 10-year U.S. yield was at 4.57%, up 75 bps in July-September, narrowing the spread with the Indian peer to a 17-year low.

The benchmark Brent crude contract threatens to hit $100 per barrel mark, amid global supply concerns, and was at $96.20 per barrel, climbing 29% in the quarter.

The gains in oil and U.S. yields also offset the fall after JPMorgan included India in its emerging market debt index.

But that is not discouraging investors.

In fact, Jean-Charles Sambor, head of fixed income for emerging markets at BNP Paribas Asset Management turned “more positive” on Indian bonds after index inclusion, citing likely inflows of about $20 billion in the next two years, with benchmark yield below 7% by December end.

(Reporting by Dharamraj Dhutia; Editing by Dhanya Ann Thoppil)