Demand for Indian government bonds faltered on Thursday as renewed US-Iran strikes drove oil prices higher and raised concerns about the economic fallout for the world’s third-largest oil importer.
The US launched new strikes on multiple targets overnight in Iran, with US President Donald Trump threatening even more attacks if no peace deal is secured.
Brent crude futures surged 1.6 per cent to $94.55 in Asian trade. It has risen 30 per cent since the war began on February 28.
The yield on the benchmark 6.94 per cent 2036 bond steadied at 6.9430 per cent by 10:15 a.m. IST after rising to 6.9551 per cent earlier in the session. Yields move inversely to prices.
Foreign banks sold ₹4,376 crore of Indian bonds on Thursday, their biggest one-day outflow since April 2.
India is increasingly counting the cost of the Iran war, which economists say will keep mounting if the deadlock between the US and Iran remains unresolved and the blockage of oil supplies continues.
Consequently, the central bank sees inflation averaging 5.1 per cent in the financial year and growth slipping to 6.6 per cent from 7.7 per cent in the previous year.
The Indian rupee slipped 0.43% to 95.6725 per dollar on Thursday. It has depreciated over 5 per cent since February-end.
The government and the Reserve Bank of India have announced a slate of measures to boost foreign inflows to defend the rupee and strengthen India’s external balances.
“Any long-term bets on Indian debt after the measures will depend on the actual flow of foreign funds… till then focus is on Brent,” a private-bank trader said.
Rates
India’s overnight index swap rates eased as traders received betting yields would soften over the medium term on foreign inflows.
The one-year swap fell 2.5 bps to 6.03%, while the two-year rate and the five-year rate eased 1.25 bps each to 6.21% and 6.4550% respectively.