Indian government bonds are likely to extend their decline in early deals on Friday as
traders brace for a large debt auction, while oil prices remain
elevated amid doubts over the durability of a ceasefire between
the U.S. and Iran.
The benchmark 6.48% 2035 bond yield will
likely trade in the 6.95%-6.99% range until the debt auction
later in the day, a private bank trader said, after ending at
6.9601% on Thursday.
New Delhi will sell 340 billion rupees ($3.68 billion) of
the benchmark bond, taking the outstanding issuance size of this
paper to 2.26 trillion rupees.
“There is interest in the benchmark paper, but investors
would prefer some concession before the auction. Unless there is
stronger central bank support or a favourable global backdrop,
the market may demand a yield closer to 7%,” the trader said.
On Wednesday, the 10-year bond yield had posted its biggest
single-day decline as it plunged 15 basis points after the
warring countries accepted a two-week truce deal.
However, the yield retraced half of that move on Thursday
after oil prices rebounded.
Oil stayed elevated on Friday at around $97 per barrel, with
markets evaluating the risk premium from the ongoing closure of
the Strait of Hormuz.
The strait connects supply from key Middle East producers,
including Iraq, Saudi Arabia, Kuwait and Qatar, to global
markets and typically carries about 20% of oil supply.
India, which imports nearly 90% of its oil, is among the
most vulnerable nations to a prolonged supply disruption.
RATES
India’s overnight index swap rates may remain largely
rangebound, though the paying bias is likely to sustain.
The one-year OIS rate ended at 5.8625%,
while the two-year rate rose closed at 6.06%.
The liquid five-year swap rate climbed nearly
6 bps to 6.3850%.
($1 = 92.4500 Indian rupees)
(Reporting by Dharamraj Dhutia; Editing by Sonia Cheema)