India's retail inflation was 2.86 per cent in March, but with rise in oil prices the headline inflation may inch upward as fuel and light has a weightage of 7.46 per cent in the overall CPI calculation. (Photo: Pixelbay)

Mumbai: Indian government bond maturing in 10 years may inch towards 7.50 per cent by the end of this week if the US-China trade talks conclude on a positive note, influencing Brent crude oil prices to inch towards $73 a barrel and above.

Since January, the Brent crude oil prices is steadily rising indicative of the fact that going ahead headline inflation may increase due to a rise in imported inflation.

India's retail inflation was 2.86 per cent in March, but with rise in oil prices the headline inflation may inch upward as fuel and light has a weightage of 7.46 per cent in the overall CPI calculation.

The market participants believe Brent crude oil price may rise above $73 a barrel by the end of this week, if the meeting between US and Chinese delegations conclude on a positive note even after US President Donald Trump threatened to increase the tariffs on $200 billion in Chinese products, to 25 per cent from 10 per cent, from Friday.

"US-China trade tensions are set to be at the forefront of the market's collective mind this week, as any nuance out of discussions in Washington could trigger knee-jerk moves by traders," said a chief dealer with a foreign bank, who does not wish to be identified as he is not authorised to speak to media.

Echoing a similar sentiment, a dealer with a state-run bank said, "Volatility in oil prices are creating a sense of pessimism indicative of the fact that inflation may be on the rise, even as the demand supply mismatch of oil continues to persist due to global growth tensions".

This would mean yield on the benchmark 10-year 7.26 per cent - 2029 bond may rise towards 7.50 per cent with 7.35-7.45 per cent been the trading range for the week to May 10 compared to 7.38-7.41 per cent range seen in the previous week, a poll of 10 fund managers and bank dealers showed.

If the RBI conducts OMO purchase later this week, we may actually see the benchmark 10-year bond yield falling to 7.30 per cent by weekend. The market participants are speculating that the RBI may conduct OMO purchase auction on Thursday.

—TickerNews Service