MUMBAI: Indian government bond yields are likely to trend marginally higher on Tuesday as oil prices as well as US yields remain elevated and as worries over additional supply from the local central bank continue to hurt market sentiment.
The 10-year benchmark 7.18% 2033 bond yield is likely to be in the 7.31%-7.36% range, after ending at 7.3355% in the previous session, a trader with a private bank said.
“Unless oil and Treasury yields come down sharply, the bottom is unlikely to be broken,” the trader said.
Oil prices eased marginally amid hopes the US would ease sanctions on Venezuela and step up efforts to prevent the Middle East conflict from escalating.
However, Brent crude continues to hover around the $90-per-barrel mark.
Worries that the conflict will affect supply have pushed oil prices higher, which has a direct impact on inflation in net importers such as India.
US yields rose amid continuous supply, while investors try to gauge the Federal Reserve’s efforts to curb high inflation with what should be the term premium for interest rates.
The 10-year yield was above the 4.70% mark.
Meanwhile, traders remain cautious ahead of debt sales by the Reserve Bank of India, which had announced plans to sell bonds via open market operations (OMO) to withdraw liquidity.
Market participants expect sales of 500 billion rupees (about $6 billion), likely coming as state-run banks slow down their bond purchases.
With US yields, oil prices and the OMO sales in mind, Kotak Mahindra Bank expects the 10-year yield to trade in the 7.25%-7.50% range in the near term.