Bond yields softens as commodity prices fall

Mumbai, March 15 Declining commodity prices have softened India's 10-year G-Sec bond yield since the geo-political crisis involving Russia-Ukraine began.

Accordingly, the 10 year benchmark G-Sec bond yield came down to 6.82 per cent, from a recent high of 6.90 per cent.

In financial parlance, higher bond yields drive up the cost of government borrowings, thereby, impacting budgetary expansion plans.

Notably, recent peace talks between Russia and Ukraine as well as a major anti-Covid lockdown in China has cooled-off crude oil prices.

"Bond yields moved from 6.85 per cent to 6.82 per cent today on back of softening crude," said Sajal Gupta Head Fx & Rates Edelweiss.

"It went as high as 6.93 per cent in the recent past but is expected to head higher due to crude and global commodity inflation. Government divestment also needs to be on track to ensure budgeted level of borrowings. US rate hikes in 2022 would also put India's bond yields at risk of rising higher."

Lately, the crisis has led to a global spike in international prices of crude oil, natural gas, coal, nickel, copper, aluminium, titanium and palladium.

"G-Sec yields have improved backed by softening commodity prices, especially Oil. 10 year benchmark G-Sec yields is now at 6.82 per cent, from a recent high of 6.90 per cent," said Soumyajit Niyogi, Associate Director, India Ratings.

"Absence of primary auctions also added to the market condition, though temporary."

However, expensive manufactured goods on the back of rising raw material cost have triggered an inflationary trend during February 2022.

On Monday, February data points for two inflationary gauges Wholesale Price Index and Retail Price Index showed an upward trajectory.

"Current bond yield is coming down. This means that interest rate may change soon," said Kshitij Purohit, Lead of Commodities and Currencies CapitalVia Global Research.

"Yesterday (on Monday), India's official data showed a rise in retail and wholesale inflation."

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