Indian bonds are getting sold off as oil market rally causes jitters

Indranil Mukherjee / Getty Images

Indian government bond yields have been jumping around over the past week, after the market rallied strongly in March.

The selloff saw Indian 10-year bond yields rise by more than 40 basis points, before buyers stepped in today:

The moves have been more pronounced in the longer-term debt, with five-year bond yields also rising to 7.38% from 7.1%. Indian 2-years are trading at 6.87% — up from 6.75% in the week prior.

Up to that point, Indian bonds were rallying as the Reserve Bank of India said it would reduce forthcoming bond issuance.

In addition, the RBI revised its inflation projections lower for the Indian economy — a move that saw 10-year bond yields hit a four-year low last Thursday.

But since then, the price-action has seen increased volatility as the market tried to determine an appropriate trading range.

Some analysts have pointed to rising oil prices as a catalyst for the selloff, given that India imports 80% of its oil is reliant on stable prices for economic growth.

Benchmark crude oil reached a new three-year high above $US72 a barrel overnight.

The sharp rise has been driven by renewed military tensions in Syria, and reports that Saudi Arabia will extend production cuts in an effort to push prices back towards $US80 a barrel.

A report in the Times of India said that ahead of multiple state elections this year, the Indian government would prefer oil prices closer to $50 a barrel in order to better control its finances.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.