Bond yields lower tracking decline in oil prices, U.S. peers

By Bhakti Tambe

MUMBAI, Nov 28 (Reuters) - Indian government bond yields edged lower in early trade on Monday as a continued decline in oil prices provided comfort to market participants, while lower U.S. Treasury yields also aided sentiment.

The benchmark Indian 10-year government bond yield IN072632G=CC was down 4 basis points (bps) at 7.2609% as of 0456 GMT.

Yields opened down mainly due to a fall in oil prices but will move in a narrow range through the session, Shrisha Acharya, a fixed income dealer at Mumbai-based DCB Bank said.

"The 7.25%-7.33% range remains the crucial band for benchmark yield. If crude prices keep falling, we may see yields breaking below the 7.25% mark, but unlikely to sustain at that level," he said.

Oil prices fell over 2.5% early on Monday to $81.37 per barrel as protests in China over strict COVID-19 curbs fuelled concerns over demand.

U.S. yields were down 5 bps at 3.6481%.

Oil price moves have a direct impact on local inflation as India imports more than two-thirds of its oil requirements.

Easing inflation has raised hopes that the Reserve Bank of India (RBI), which is scheduled to announce its policy decision on Dec 7, may go slow on its pace of interest rate hikes.

Most market participants now expect the central bank to raise its key lending rate by 35 bps after three back-to-back 50-bps hikes. It has raised the repo rate by 190 basis points since May to 5.90%.

The 10-year yield will largely remain in the range of 7.22%-7.40% till the RBI policy outcome, Acharya said.

There was demand for papers with 10-14 year maturity from insurance companies and pension funds in morning trade, a trader at a primary dealership said.

"If that demand sustains, yields may inch further down," he added.
Reporting by Bhakti Tambe Editing by Swati Bhat and Nivedita Bhattacharjee

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