Yields on benchmark bonds rose sharply on Tuesday as higher Brent crude oil prices in the international market continued to inch upwards and the Reserve Bank of India (RBI) announced its weekly bond auction nearly after two weeks. The 10-year benchmark bond 6.54%-2032 yield ended nearly 5 basis points higher at 6.7486% on Tuesday. While the old benchmark 6.10%-2031 bond yield ended 6 basis points higher at 6.7808%.
“Geopolitical tensions and consequent rise in crude oil price is a big risk for Indian bonds. Indian bond yields will continue to track the crude oil movement closely,” said Pankaj Pathak, Fund Manager – Fixed Income, Quantum Mutual Fund.
The RBI, after market hours on Monday, announced the weekly bond auction to sell three dated securities for a notified amount of Rs 23,000 crore. This has been announced nearly after two weeks as the central bank in consultation with the government of India had cancelled the previous two auctions on the good cash position of the government.
The auction includes the sale of the new benchmark 6.54%-2032 worth Rs 13,000 crore, 6.95%-2061 bonds worth Rs 6,000 crore and GoI FRB 2028 worth Rs 4,000 crore. The auction will be conducted using uniform price method for GOI FRB 2028 and 6.54%-2032, and multiple price method for 6.95%-2061.
Before the announcement, the bond yields were trading in a very thin range and had eased nearly 18-20 basis points after the cancellation of the auction. But the sudden announcement of a weekly bond auction has dampened market sentiments, which pushed up yields.
Additionally, Brent crude oil prices have surged sharply in the international market and crossed the $96 per barrel mark after the threat of Russia’s invasion of Ukraine continued to spook markets. By the closing of Indian market hours, the Brent crude oil prices were trading $98.28 a barrel, nearly $2.89 or 3.03% up.
Market participants expect yields to rise further on the benchmark due to supply in that segment in the upcoming auction and considering the geopolitical situations. “We see Indian bonds yields moving higher if the geopolitical situation deteriorates,” Pathak added.
