The Indian government bonds continue to trade lower on Wednesday amid tracking firm crude oil prices, which could potentially push up domestic inflation and narrow space for monetary easing going ahead. The yield on the benchmark 10-year bonds, which moves inversely to its price rose 1bp to 7.467 pct, the yield on 15-year bonds inched higher 1bp to 7.912 pct, 30-year bonds yield jumped 2bps to 7.874 pct and the yield on the short-term 2-year bond climbed 1bp to 7.112 pct by 0720 GMT.
The Indian bonds have been closely following developments in oil markets because of their impact on inflation expectations, as India imports 80 pct of its crude oil requirements. Today, the crude oil prices rose after the American Petroleum Institute reported that U.S. crude supplies fell by 1.1 million barrels for the week ended May 13. Reuters in its recent report said that supply disruptions from Nigeria, Venezuela, the United States and China triggered a U-turn in the oil outlook of Goldman Sachs, which long warned of overflowing storage and another looming crash in prices. Venezuela's oil production has already fallen by at least 188,000 barrel per day (bpd) since the start of the year as PDVSA struggles to make the investment needed to keep output steady. In the United States, crude production has fallen to 8.8 million bpd, 8.4 pct below 2015 peaks as the sector suffers a wave of bankruptcies. And in China, output fell 5.6 pct to 4.04 million bpd in April, compared with the same time last year. Meanwhile, the International benchmark Brent futures rose 0.32 pct to $49.44 and West Texas Intermediate (WTI) jumped 0.39 pct to $48.50 by 0540 GMT.
“Traders are looking for fresh cues, including the possibility of bond purchases by the central bank and high oil prices are suppressing appetite,” said a trader at a foreign bank to Reuters.
Moreover, investors shifted from safe-haven buying after data showed higher than expected April inflation figure and on delayed monsoon forecast for IMD, raised concerns that the Reserve Bank of India (RBI) may not be able to slash rates at the up-coming policy meeting. The India Meteorological Department (IMD) in its first monsoon forecast for 2016 said that monsoon is likely to hit Indian coast 6-days later than normal. Moreover, the India's wholesale price index (WPI) rose 0.34 pct in April (after staying in negative zone for 17 straight months), higher than the market expectation of 0.20 pct fall, from down 0.85 pct in the preceding month. Last week, the India’s retail inflation accelerated in April to 5.39 pct y/y (the fastest pace of annual expansion since January), higher than the market consensus of 5.0 pct y/y, from 4.83 pct in March. The acceleration in inflation was mainly driven by the rise in food prices, which increased more than expected to 1.4 pct m/m in April. The Reserve Bank of India had slashed its benchmark policy rate by 25 bps to 6.5 pct in April, but is widely expected to keep rates unchanged at a June 7 meeting. The RBI aims to keep inflation at 5 pct by March 2017 and lower it to 4 pct a year after that.
Meanwhile, India is scheduled to borrow 150 billion rupees through a bond auction on May 20. It will auction a similar amount of treasury bills today. The Sensex fell 0.68 pct or 176.27 points to 25,597.34 and Nifty-50 futures dipped 0.87 pct or 69.25 points to 7,837 by 0720 GMT.
The material has been provided by InstaForex Company – www.instaforex.com