A worker pours extracted crude oil into a buried drum for heating during a distillation process in the village of Wonocolo, East Java, Indonesia. (Photographer: Dimas Ardian/Bloomberg)

Oil Adds to Trouble for Indian Bonds as Yields Climb for 4th Day

(Bloomberg) -- The rally that drove Indian benchmark yields to a four-month low last week is fast disappearing, with rising oil prices dealing the latest blow.

The 10-year yield rose as much as 11 basis points on Wednesday amid concern higher Brent crude prices will fuel inflation in a nation that relies on imports for majority of its oil needs. That marks a fourth day of selloff in the bond as a slew of supportive measures have so far failed to lure state-run lenders -- the biggest holders of sovereign notes -- back after the longest market rout in about two decades.

Ten-year bonds capped their best week since 2016 last Friday after the central bank lowered its inflation forecast. This added to bullish triggers including a truncated fiscal first-half borrowing plan by the government and a breather in provisioning of debt losses for banks.

The notes have already erased all of last week’s gains, and data from the Clearing Corp. of India showed that state banks have been net sellers of bonds on six of the last eight days.

“It’s unfathomable as to what’s happening to Indian bonds,” Vijay Sharma, executive vice president for fixed-income at PNB Gilts Ltd., said by phone from New Delhi. The recent uptick in Brent crude added to the fragile sentiment and “all bets will be off should the 10-year yield close above 7.49 percent today,” Sharma said.

The 10-year yield touched 7.49 percent before retreating to 7.42 percent following a report that India is said to be mulling a sale of $4 billion in sovereign bonds. The yield is still up five basis points from its close Tuesday.

India is discussing the option of selling its maiden sovereign bonds, Cogencis reported on its Twitter feed, without citing anyone. The government may sell the bonds in the year ending March 2019, but a final decision hasn’t been made, according to Cogencis.

©2018 Bloomberg L.P.