* India's 10-yr bond yield ends at 7.89 pct, 4 bps higher
* India 5-year OIS at 7-mth high
* Brent crude rises to a more-than 3 month high
* RBI chief says future rate cuts will also be driven by
current account gap
By Subhadip Sircar
MUMBAI, Jan 30 Indian government bond yields
rose and rate swaps spiked on Wednesday as a surge in global
crude oil prices reignited concerns about inflation and the
bloated current account deficit, at a time when investors are
wary about future rate cuts by the central bank.
Reserve Bank of India chief Duvvuri Subbarao said on
Wednesday that future rate cuts will be driven not only by the
inflation trend, but also the current account deficit,
reiterating comments made a day earlier.
The central bank on Tuesday lowered the repo rate by 25
basis points, but dashed hopes of a sustained rate-easing cycle
with a cautious statement. Meanwhile, the RBI's cut in the cash
reserve ratio reduced the prospect of its bond purchases via
open market operations.
The RBI's stance has stalled a rally in bond markets, which
started late last month, with investors worried about the
prospect that large bond supplies will resume in February after
the government reduced issuance this month to curb the fiscal
"Fresh supply is again starting and the CRR cut has reduced
OMO hopes. However, with limited supply this fiscal year, I
expect 7.90 percent to be toppish for yields," said Ashish
Parthasarthy, treasurer at HDFC Bank.
The 10-year benchmark bond yield ended at
7.89 percent, up 4 basis points (bps) from its Tuesday's close
and snapping two sessions of falls.
Brent crude edged up to a more than three-month high of
$114.57 per barrel on Wednesday, buoyed by optimism about the
U.S. economy after data from the world's largest oil consumer
showed a recovery was gaining ground.
Crude oil comprises two-thirds of India's imports and a rise
in crude prices will add to the import bill and stoke inflation.
India is buffeted by twin deficits on the fiscal side and
current account, making it dependent on volatile capital inflows
to finance the deficit.
Dealers are now looking at Friday's auction when the
government will sell 120 billion rupees of bonds, resuming its
auction schedule after a week's gap.
February will see large supplies of debt totalling 480
billion rupees after only one auction in January.
Interest rate swaps also rose as dealers scaled back their
rate cut expectations. The 5-year OIS rate gained
8 bps to 7.25 percent, a near seven-month high.
The 1-year overnight index swap (OIS) rate
rose 5 bps to 7.62 percent, its highest in a month.
(Editing by Prateek Chatterjee)