Bonds Yields Remain Stable as Market Awaits Clues on Brent Crude and Federal Reserve Rate Decision

Market Watch

Sovereign bonds opened little changed on April 29, as cautious traders awaited direction from volatile Brent crude prices, with the US threatening to extend the blockade of Iranian ports. The benchmark 10-year yield traded at 6.97 percent after ending the previous session at 6.98 percent. Yields have hovered around the psychological 7 percent threshold amid global energy uncertainty and a weakening rupee.

Oil prices stayed near $110 a barrel following reports of US President Donald Trump's plan to extend the blockade around Iranian ports, which could lead to more supply-chain disruptions. Although a ceasefire deal is in place, there has been no formal end to the fighting, with Iran still limiting movement around the Strait of Hormuz, a crucial energy route.

Elevated Brent crude prices are detrimental to the country's inflation outlook and also weigh on bond yields, as India meets 85 percent of its fuel needs through imports. Traders will shift focus to the US Federal Reserve policy decision scheduled late in the day. While rates are expected to remain unchanged, the tone will carry more weight than the action.

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The rupee continued to weaken, opening 20 paise lower on stubbornly high Brent and importers taking advantage of the current levels to hedge their positions against further weakening of the currency. The rupee was trading at 94.74 against the dollar, down from 94.54 in the previous session, marking the sixth straight day of decline. The currency has fallen more than 1.5 percent in the last few sessions.

Comparison of Benchmark 10-Year Yield

Note: The rupee's decline against the dollar in the last few sessions:

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