Indian bond traders may look to cut positions with Brent on cusp of $100

Business Recorder reported that Indian government bonds may face selling in early trade on Wednesday, as Brent crude approaches $100 per barrel and stokes inflation worries. A private bank trader expects the benchmark 6.94% 2036 bond yield to trade between 6.94% and 6.98%, having closed at 6.9431% in the previous session. That would reverse some of the gains made in the prior session, which were fuelled by optimism that the central bank would avoid tight liquidity absorption.

Oil rose for a fourth consecutive day in Asian trade after Iran launched new strikes against American military targets in the Gulf, widening the confrontation across the region. Iran's Revolutionary Guards claimed missile strikes on two American destroyers and a base in Jordan's Al Azraq, calling them retaliation for US attacks on Iranian tankers. US Secretary of State Marco Rubio said Washington would keep hitting Iranian oil tankers in response to attempted attacks on American warships. Brent has gained 10% so far this month.

India's central bank kept using overnight variable-rate reverse repos to drain liquidity on Tuesday instead of bond sales, after large diaspora deposit inflows pushed banking system liquidity to an all-time peak. Prolonged strength in Brent could deteriorate India's inflation path and hurt government finances, while a lasting surplus of liquidity could raise inflation and lift asset prices.