Bond yields slip for fourth day, tracking oil, U.S. peers

FILE PHOTO: A cashier checks Indian rupee notes inside a room at a fuel station in Ahmedabad

By Dharamraj Dhutia

MUMBAI (Reuters) - Indian government bond yields ended lower for a fourth consecutive session on Thursday, with the benchmark yield finishing at a six-week low, in line with the continued drop in oil prices and U.S. yields.

The benchmark 10-year yield ended at 7.3462%, its lowest since Sept. 29, after closing at 7.3870% on Wednesday. It had eased eight basis points in the previous three sessions.

"Commodities, including crude oil prices, are correcting, (while the) rupee is appreciating. The market has come to terms with the expected rate hikes and the real interest rates are looking more attractive than before," said Sandeep Bagla, CEO of Trust Mutual Fund.

"Market positioning could also drag down yields as most investors are underweight long bonds."

The benchmark Brent crude contract has slipped nearly 6.2% in the past four sessions on concerns that fresh COVID-19 curbs in China, the world's biggest crude importer, will impact demand.

Meanwhile, the 10-year U.S. yield eased to 4.09% ahead of inflation data, due later in the day, which is expected to provide more clarity on the Federal Reserve's interest rate trajectory.

The drop in oil and U.S. yields has led to aggressive receiving interest in overnight indexed swap (OIS) rates from foreign banks, which also supported buying sentiment for bonds.

As India is one of the top importers of oil, gyration in crude prices could impact domestic inflation, which has stayed above the Reserve Bank of India's 6% upper limit since January and even accelerated to a five-month high of 7.41% in September.

However, inflation is likely to have slowed to 6.73% in October due to weaker food price rises and a strong base a year ago, according to a Reuters poll. The data is due Monday.

Some bond market participants said the benchmark bond yield may have limited room to fall further as supply pressures persist, although swap rates, especially the five-year OIS, could see a steeper move lower.

(Reporting by Dharamraj Dhutia; Editing by Savio D'Souza)