Benchmark bond yield below 7.40% as rupee jumps to 5-week high

A broker reacts while trading at his computer terminal at a stock brokerage firm in Mumbai

By Dharamraj Dhutia

MUMBAI (Reuters) - India's benchmark bond yield eased below 7.40% on Wednesday, as sentiment lifted on the back of sharp gains in local currency and retracing global oil prices.

The benchmark 10-year yield was at 7.3958% as of 0450 GMT, after ending at 7.4342% on Monday. The yield fell five basis points in last two sessions. Indian markets were shut on Tuesday for a local holiday.

"Rupee which has been a major concerns in last few weeks, has turned its direction, and this is supporting investor appetite for the day," a trader with a primary dealership said.

"With U.S. yields and oil also not able to touch fresh highs, overall sentiment is much better."

Indian rupee rose to its highest level in five weeks, as the dollar wobbled amid U.S. midterm elections, with a potential Congressional gridlock seen as a negative for the greenback.

The currency rose to 81.39 earlier in the session, highest since Oct. 4, after having notched gains of over 1.5% in three trading days to Wednesday.

The benchmark Brent crude contract was 0.4% lower at $95 per barrel, after easing over 3% in last two sessions, on worries about demand on potential new lockdowns in top oil importer China.

India, another large importer, benefits from declining oil prices as it tamps down the country's inflation, which has persistently been above the target range of the country's central bank.

India's retail inflation data for October is due next week. The reading has remained above 6% since January, accelerating to a five-month high of 7.41% in September on surging food prices.

Meanwhile, data on the U.S. consumer price index (CPI) is due on Thursday, with economists predicting a decline in both monthly and annual core numbers to 0.5% and 6.5%, respectively.

The 10-year U.S. yield was largely steady around 4.15% ahead of the data, which could provide more clarity on future trajectory of interest rates.

The U.S. Federal Reserve has already raised interest rates by 375 bps since March.

The Reserve Bank of India will auction Treasury Bills worth 220 billion Indian rupees ($2.70 billion) later in the day.

($1 = 81.5650 Indian rupees)

(Reporting by Dharamraj Dhutia; Editing by Dhanya Ann Thoppil)