BackIndian bonds fall to two-month low as Ukraine tensions hit emerging markets
The benchmark 10-year bond yield closed up 4 basis points at 8.90% after rising to 8.93%, its highest since 27 Dec
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Mumbai: Indian government bonds hit their lowest in two months on Monday as fears over military tensions in Ukraine hit emerging markets and sent global crude prices surging, raising concerns about imported inflation. Bonds reeled in February, with yields rising for the first time in three months, despite solid buying by foreign investors amid expectations interest rates will remain high to combat high inflation.
However, the weaker-than-expected economic growth data for the October-December quarter released late on Friday sparked some safe-haven bids for bonds, allowing them to pare some of their losses. “The current market conditions including liquidity is fairly comfortable, but traders are playing cautiously. We could see the 10-year yield rise towards 8.95% over this week amid broadly range-bound trade," said Harish Agarwal, a fixed income trader with FirstRand Bank Ltd.
The benchmark 10-year bond yield closed up 4 basis points at 8.90% after rising to 8.93%, its highest since 27 December. Emerging markets were hit on Monday as fears that war would break out between Russia and Ukraine sent the Indian rupee down the most in nearly two weeks and domestic shares to their first loss in six sessions.
Crude oil prices jumped more than $2 a barrel to multi-month highs on Monday, a worry for India given the central bank is focused on consumer inflation, having raised interest rates by 75 basis points since September. India’s current account deficit narrowed sharply in the September quarter, thanks to steps to curb gold imports, but higher oil prices are threatening to push it higher again. In the overnight indexed swap market, the benchmark five-year swap rate closed 4 basis points higher at 8.58% while the one-year rate ended up 3 basis points at 8.69%.
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