Government bonds stumbled early on Monday, tracking U.S. Treasuries, as traders trimmed positions on concerns over broader economic risks after recent U.S.-Iran peace talks faltered and pushed up oil prices.
The benchmark 6.48% 2035 bond yield was up 6.2 basis points at 7.0437% at 10:15 a.m, compared with Friday’s close. The yield on the new 10-year 6.94% 2036 bond was up 5.2 bps at 6.9920%.
President Donald Trump’s swift rejection of Iran’s counter to a U.S. peace proposal lifted oil on Monday, raising concerns that the 10-week-old conflict will drag on and keep shipping through the Strait of Hormuz paralyzed.
Brent crude futures rose 3.21% to $104.54 a barrel in Asian trading and have stayed above $100 for the last three weeks.
India’s heavy crude import dependence — about a fourth of its total import bill — could stoke inflation, hurt growth and widen the current-account deficit.
India’s state-dominated refining sector has so far kept fuel prices steady despite surging crude costs, losing about 100 Indian rupees ($1.05) a litre on diesel and 20 rupees on gasoline.
“If oil sustains at these levels, it is likely that the government will have to allow oil companies raise prices,” a trader at an asset manager said.
Traders have also grown cautious after Prime Minister Narendra Modi said people should return to work from home and online meetings, saying it would help India use less fuel.
Separately, the market awaits April inflation print due Tuesday, which likely moved closer to the central bank’s 4% target from 3.40% in March, a Reuters poll of economists showed.
Economists said a hike in LPG prices likely percolated into April’s consumer prices.
RATES
India’s overnight index swap rates jumped as rising oil and escalating war risks added to inflation worries and raised rate-hike bets.
The one-year swap rate was up 8 bps at 5.9750%, while the two-year swap rate rose 10 bps to 6.23%. The most liquid five-year OIS rate was at 6.6475%, higher by 9 bps.