INDIA BONDS-India bond yields seen easing as oil drop aids sentiment

INDIA BONDS-India bond yields seen easing as oil drop aids sentiment

MUMBAI, Nov 8 (Reuters) – Indian government bond yields are likely to trend lower in the early trading session on Wednesday, following a plunge in oil prices that boded well for the local inflation outlook.

The 10-year benchmark bond yield IN071833G=CC is expected to move in the range of 7.26-7.31% after ending the previous session at 7.2813%, a trader with a primary dealership said.

“Global factors have started favoring now, and with Brent crude oil nearing the $80-per-barrel mark, we may continue to see another new bottom for the benchmark yield,” the trader said.

Oil prices declined after industry data showed a steep build in U.S. crude supplies, while mixed Chinese economic data raised worries about global demand for crude.

The U.S. Energy Information Administration now expects total petroleum consumption in the country to fall by 300,000 barrels per day (bpd) this year, reversing its earlier forecast of a 100,000 bpd increase.

The benchmark Brent crude contract dropped over 4% on Tuesday, and hit a low of $81.26 per barrel in Asian hours on Wednesday, which is its lowest level since July 24.

Easing oil prices is good for large importers like India and comes at a time when the Reserve Bank of India (RBI) is focusing on bringing down local retail inflation to its 4% target.

India’s retail inflation for October is due next week, with Barclays expecting a reading of 4.60%, down from 5.02% in September.

Easing food inflation on-year likely drove the continued softening in headline inflation, while core inflation was broadly stable, supported by easing momentum and base effects, Barclays said.

Meanwhile, the 10-year U.S. yield stayed below the 4.60% mark, as traders do not expect the Federal Reserve to hike rates any further.

Market participants continue to await the RBI’s bond sales, especially after the recent improvement in banking system liquidity, and comes after traders raised concerns over declining trading activity since the central bank announced debt sale plans.

KEY INDICATORS:

** Brent crude futures LCOc1 0.1% lower at $81.60 per barrel, after easing 4.2% in previous session

** The 10-year U.S. Treasury yield US10YT=RR at 4.5810%, two-year yield US2YT=RR at 4.9343%

** RBI to auction Treasury bills worth 240 billion rupees ($2.88 billion)

($1 = 83.2270 Indian rupees)

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