Indian bonds marginally down on delayed monsoon forecast, higher inflation

The Indian government bonds were trading marginally lower on Monday as India Meteorological Department (IMD) said that monsoon may get delayed by a week on Sunday. Also, investors shifted from safe-haven buying after data showed higher than expected April wholesale inflation figure, raised concerns that the Reserve Bank of India (RBI) may not be able to slash rates at the up-coming policy meeting. The yield on the benchmark 10-year bonds, which moves inversely to its price rose 0.09 pct to 7.457 pct, the yield on 12-year bonds rose 0.17 pct to 7.787 pct, 30-year bonds yield rose 0.14 pct to 7.861 pct and the yield on the 2-year bond climbed 0.06 pct to 7.120 pct by 0710 GMT.

The India Meteorological Department (IMD) in its first monsoon forecast for 2016 said that monsoon is likely to hit Indian coast 6-days later than normal. Moreover, the India's wholesale price index (WPI) rose 0.34 pct in April (after staying in negative zone for 17 straight months), higher than the market expectation of 0.20 pct fall, from down 0.85 pct in the preceding month. Last week, the India’s retail inflation accelerated in April to 5.39 pct y/y (the fastest pace of annual expansion since January), higher than the market consensus of 5.0 pct y/y, from 4.83 pct in March. The acceleration in inflation was mainly driven by the rise in food prices, which increased more than expected to 1.4 pct m/m in April. The Reserve Bank of India had slashed its benchmark policy rate by 25 bps to 6.5 pct in April, but is widely expected to keep rates unchanged at a June 7 meeting. The RBI aims to keep inflation at 5 pct by March 2017 and lower it to 4 pct a year after that.

The Indian bonds have been closely following developments in oil markets because of their impact on inflation expectations, as India imports 80 pct of its crude oil requirements. Today, the crude oil prices jumped more than 1 pct after long-time bear Goldman Sachs said the market had ended almost 2-years of oversupply following global oil disruptions and flipped to a deficit. Reuters in its recent report said that supply disruptions from Nigeria, Venezuela, the United States and China triggered a U-turn in the oil outlook of Goldman Sachs, which long warned of overflowing storage and another looming crash in prices. Venezuela's oil production has already fallen by at least 188,000 bpd since the start of the year as PDVSA struggles to make the investment needed to keep output steady. In the United States, crude production has fallen to 8.8 million bpd, 8.4 percent below 2015 peaks as the sector suffers a wave of bankruptcies. And in China, output fell 5.6 percent to 4.04 million bpd in April, compared with the same time last year. The International benchmark Brent futures rose 1.40 pct to $48.49 and West Texas Intermediate (WTI) jumped 1.34 pct to $46.83 by 0620 GMT.

Meanwhile, Sensex fell 0.36 pct or 92.67 points to 25,396.90 and Nifty-50 futures tumbled 0.46 pct or 36 points to 7,796.50 by 0700 GMT.