Benchmark return increases for three consecutive days on global indices

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At the close of market hours, Brent crude oil prices were trading at $ 80.02 per barrel for the contract maturing in November.

By Manish M Suvarna

Benchmark bond yields have risen nearly 9 basis points over the past three days, following a sharp rise in U.S. Treasury yields after the Federal Reserve indicated a faster-than-expected reduction in its purchases of ‘bonds and with crude oil prices hitting $ 80 a barrel.

On Tuesday, the benchmark bond yield 6.10% -2031 closed at 6.2281%, down from 6.2087% at the close of the previous trading session. On September 23, the benchmark bond yield hovered around 6.1397%.

“Oil is boiling, US yields have risen after the last FOMC meeting, and nationally the Reserve Bank of India appears reluctant to allow central system liquidity to increase further (with obvious implications for its program of purchase of bonds). Global negatives seem to have gained in recent days, causing yields to rise recently, ”said Suyash Choudhary, head of fixed income, IDFC AMC.

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However, a further rise in yields was capped on positive national indices as the government kept its second half market borrowing at just over Rs 5 lakh crore and did not announce any additional borrowing.

The central government announced on Monday that it would borrow Rs 5.03 lakh crore between October and March 2022. The projection also takes into account the requirements for disbursing the balance to states due to a back-to-back loan facility instead of the GST compensation during the year. The Ministry of Finance had planned to borrow 60% of 12.05 lakh crore in the first half of the year, but the actual borrowing was Rs 7.02 lakh crore.

“The borrowing schedule has no additional bond supply, which appears to be in favor of the market. The second half borrowing will compensate states for a shortfall caused by the pandemic, ”said Kunal Sodhani, assistant vice president, Global Trading Center, Shinhan Bank India.

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U.S. Treasury yields have surged over the past three trading sessions as investors around the world worried about the Fed’s comments, which pointed to a faster-than-expected decline and an earlier-than-expected rate hike. US Treasuries have risen more than 15 basis points in the past three trading sessions, as they hovered around 1.48% on Monday.

The rise in crude oil prices is also weakening the sentiment of traders in the bond market. Brent crude oil prices rose for the fifth day in a row and hit the $ 80 per barrel mark on Tuesday due to tight supply and growing demand as economic activity picks up around the world.

At the close of market hours, Brent crude oil prices were trading at $ 80.02 per barrel for the contract maturing in November.

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Market participants said if oil prices continued to rise along with US Treasury yields, a further rise in benchmark bond yields could not be ruled out. “The wider range for the 10-year G-Sec now appears to be 6.10% to 6.35%,” Sodhani said.

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