Traders anticipate the 10-year government security (G-sec) yield to open 3-4 basis points higher than Friday’s close of 6.31%, according to CCIL data. The Indian rupee is likely to open around 86.80 per US dollar Monday, about 22 paise weaker than its previous close of 86.58/$1.
The rupee had rebounded on Friday after five consecutive sessions of decline. However, reports of US strikes on Iranian nuclear sites have set the stage for a reversal of that recovery. Further overnight escalation by Iran is expected to drive oil prices higher, which could exert upward pressure on bond yields.
Following unexpected US strikes on Iranian nuclear sites, Indian bond yields and the rupee are anticipated to weaken. The 10-year government security yield is expected to rise, while the rupee may depreciate to around 86.80 per US dollar. Rising crude oil prices, exacerbated by potential Strait of Hormuz disruptions, pose inflationary risks for India.
Dealers would also keep an eye out for the intensity of intervention by the Reserve Bank of India (RBI) in the currency spot market, traders said. “Rupee is expected to open around 86.80/$1 levels, with a good possibility of the currency weakening towards 87/$1 if oil prices go higher,” said Ritesh Bhansali, deputy CEO at Mecklai Financial Services.
Brent crude futures have surged nearly 18% since June 10, reaching a five-month high of $79.04 on Thursday, according to Reuters. Rising crude prices pose inflationary risks for India, a major importer of oil. “We know yields will open higher on Monday, but we will be able to take a proper position only after assessing oil prices early on Monday,” said Vijay Sharma, senior executive VP at PNB Gilts.
The US strike followed President Donald Trump’s earlier statement on Friday that he would delay action against Iran by a week. That announcement had led to a 14 paise appreciation in the rupee, which closed at 86.58 per dollar.”Yields would likely open a bit higher due to the unexpected attack, especially after the ‘two weeks pause’ comment by Trump which triggered the rally on Friday. This rally may unwind, and we can see yields of the most traded 2034 paper around 6.40% levels,” said Gopal Tripathi, head of treasury at Jana Small Finance Bank. The 2034 paper had closed at 6.37% on Friday, according to CCIL.
