Bond Yields Remain Steady As RBI Actions Cushion Impact Of Rising Oil

Government bond yields remained largely unchanged on June 8 as recent measures announced by the Reserve Bank of India (RBI) helped counter concerns arising from a sharp rise in crude oil prices following escalating tensions in the Middle East.

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The benchmark 10-year government bond yield was trading at 6.9792% on June 8, compared with its previous close of 6.9772%. The muted movement in yields came despite a surge in oil prices over the weekend amid worsening Israel-Lebanon tensions, which raised concerns over global energy supplies and cast uncertainty over ongoing U.S.-Iran peace efforts.

RBI Measures Support Bond Market Sentiment

The market attitude was still underpinned by the RBI policy moves announced on June 5. The central bank left its policy rate constant at 5.25% and announced a package of initiatives to entice inflows of foreign capital into the domestic debt market.

Among the key steps was the inclusion of ultra-long-term government securities under the Fully Accessible Route (FAR), allowing eligible foreign investors greater access to these securities without investment limits.

The government’s move to do away with long-term capital gains tax on foreign investors in Indian bonds further helped market sentiment. The move is aimed at easing capital inflows into the bond market and to attract Indian debt securities to overseas investors.

Focus Shifts to Rupee and Foreign Investor Response

Market participants are now closely monitoring the rupee and the response of foreign investors to the latest policy measures introduced by authorities.

Traders expect the benchmark 10-year bond yield to move within a range of 6.92% to 7.02% during the week. Currency movements are likely to remain a key factor influencing bond market sentiment in the near term.
The Indian rupee opened 37 paise lower at 95.32 against the U.S. dollar on June 8, after closing at 94.95 in the previous session. The decline followed a sharp rally in the domestic currency on June 5.

Rupee Had Posted Strong Gains After RBI Announcements

The rupee recorded its biggest single-day gain in nearly two months on June 5 after the RBI unveiled a package of measures aimed at supporting the currency and improving capital inflows.

Central bank statements gave market participants comfort, allaying fears about external pressures and fostering a more positive climate in financial markets. Though higher crude oil prices remain a danger for inflation and the current account balance, investors seemed comforted by the policy support measures put in place by the RBI and the government.

So, this left the bond stable at the start of the week with traders looking for more cues from currency changes and foreign investor activity after the recent policy adjustments.