(Reuters) - Indian government bond yields are expected to open higher on Wednesday, as the benchmark Brent crude contract touching over $100 per barrel added to prevailing unease over inflation.
The benchmark 10-year government bond yield is likely to fluctuate in 7.26%-7.32% band, a trader with a private bank said. The yield has risen 10 basis points in the last four sessions. It had ended at 7.2811% on Tuesday.
"Oil, which was giving comfort for last few sessions, is back to $100 per barrel levels, and this is another major negative a time when inflation concerns are already hurting," the trader said.
Oil prices were down on Wednesday but the global benchmark Brent crude futures was hovering close to $100 a barrel.
Prices had surged nearly 4% the previous day over fears of an imminent output cut by the Organization of the Petroleum Exporting Countries and allies, a group known as OPEC+.
India is a major importer of crude oil and domestic inflationary pressures are expected to mount due to higher prices.
Meanwhile, the 10-year U.S. yield stayed over 3% mark, as investors anticipate hawkish commentary from the Federal Reserve towards tackling inflation.
Markets are focussed on Fed Chair Jerome Powell, who is scheduled to speak at the Jackson Hole symposium on Friday.
The U.S. Federal Reserve has hiked by 225 basis points since March of this year, including two back-to-back 75 basis points hike in June and July. Odds of another 75 basis point rate hike by the Fed in September are higher than that of a 50 basis points increase, according to the CME FedWatch Tool.
Financial markets locally are vigilant over inflation trajectory. This, despite comments from the Reserve Bank of India Governor Shaktikanta Das, who on Tuesday, sought to allay fears when he said inflation has peaked.
Das added that inflation will moderate and bond yields are reflecting that trend.
India's consumer inflation dipped to 6.71% in July, easing for the third month in a row, but continues to remain above the RBI's mandated target band of 2-6% for a seventh straight month.