Indian bonds gained the most in six months on Monday as crude oil prices extended their losses, easing inflation concerns for the fuel-importing nation. The benchmark 10-year yield fell as much as nine basis points, the most since early May, to 7.32%. Five-year overnight index swap rates, a barometer for interest-rate expectations, fell as much as 8 basis points.
"If oil keeps falling then expectations of a 50-basis-point rate hike by the RBI in December could be dialed down to 25 basis points," said VRC Reddy, head of treasury at Karur Vysya Bank. "We are seeing significant buying interest at higher yield levels after the recent bond selloff."
Oil declined following a report that US President Donald Trump wants to give diplomacy with Iran more time before any move to resume strikes. Brent slid by more than 4% toward $108 a barrel. For India, the drop eases consumer price pressures as well as strain on external finances, as the country imports most of its oil.
Local bonds sold off in October, with benchmark 10-year yields approaching a four-year high as elevated oil prices and weakness in the rupee prompted traders to price in faster RBI interest-rate hikes. The 10-year yield could fall to 7.25% in the coming days if oil extends its decline, Reddy said.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing