Bond yields rise as recent price rally seen overdone

Indian government bond yields rose on Monday after opening lower on the back of lower oil prices as a recent rally in bond prices was seen overdone, dealers said.

The benchmark Indian 10-year government bond yield ended higher at 7.3201% on Monday, after closing at 7.3077% on Friday. The yield touched an intraday low of 7.2794%.

The yields reached an intraday high of nearly 7.50% on Nov. 4 and have been on a downward trajectory since then.

The decline in oil prices should support bond prices but we have seen selling pressure as traders felt that the rally was overdone, a treasury head at a state-owned bank said.

Crude oil prices fell for the third consecutive session on Monday on concerns about weakened demand in China and further U.S. interest rate hikes. The movement in oil prices has a direct impact on local inflation as India is one of the largest importers of the commodity.

"There's been a correction in both OIS and gilts as traders reassessed their position in a week where there are no major triggers," Yogesh Kalinge, vice president at said.

The 5-year OIS rose to near 6.50%, up about 7 basis points from Friday. It had fallen to 6.35% earlier in the session

There was a pullback in government bond prices because it has rallied "quite a bit" in the last few days and will now remain rangebound, Kalinge added.

Market participants now expect the benchmark bond yield to move in a narrow range of 7.25%-7.35% for the next few days. (Reporting by Bhakti Tambe; Editing by Janane Venkatraman)