Benchmark Yield At Near 4-Month High On Spike In U.S. Yields, Oil

The yield on the benchmark Indian government bond hit its highest level in nearly four months on Monday, tracking the relentless spike in the U.S. yields as well as oil prices.

The benchmark Indian government bond yield ended at 7.4758%, the highest since June 21. It had ended at 7.4596% on Friday and had risen 10 basis points in the last two sessions.

"The selling, for the time being, is done, and we should see bonds in the thin range till inflation data, especially of the U.S. which would provide more clarity on their rate hike cycle, while India's reading is more or less priced in," said Debendra Kumar Dash, senior vice president, treasury, at AU Small Finance Bank.

The U.S. inflation data is due on Thursday. The 10-year yield was around 3.90% after a strong jobs report fuelled bets of another 75 basis points rate hike by the Federal Reserve in November.

Nonfarm payrolls increased by 263,000 jobs last month, the Labor Department said in its report, above the 250,000 estimates of economists polled by Reuters. The unemployment rate fell to 3.5% from 3.7% in the prior month.

Oil prices also stayed elevated at $97.05 per barrel, as the benchmark Brent crude contract jumped more than 11% last week, its biggest such move in six months, after the Organization of Petroleum Exporting Countries and allies, together known as OPEC+, agreed to make its largest supply cut since 2020.

The high oil prices have a direct impact on inflation in India, one of the largest importers of the commodity.

India's retail inflation accelerated to a five-month high of 7.30% in September due to surging food prices, staying well above the Reserve Bank of India's tolerance band for a ninth month, a Reuters poll found. The data is due on Wednesday.

Meanwhile, analysts expect foreign funds to continue to trim their holdings in India's government debt after J. P. Morgan delayed the inclusion of the country's bonds in its global index, which sparked a further rise in yields.