Indian government bonds drifted lower early on Friday ahead of a heavy debt sale, while firm oil prices kept inflation risks elevated, even after US President Donald Trump said the Iran war could end soon.
India’s benchmark 6.48 per cent 2035 bond yield was at 6.9056 per cent as of 11:45 a.m. IST. It settled at 6.8884 per cent on Thursday. Bond yields move inversely to prices.
New Delhi will sell 320 billion rupees ($3.44 billion) worth of 5-year and 40-year notes later in the day.
“Demand and risk appetite in the weekly auction will decide the direction of yields,” a private bank trader said.
Meanwhile, Trump expressed confidence that an agreement could soon be reached to end the war following a 10-day truce that went in to effect between Lebanon and Israel.
Still, benchmark Brent crude futures hovered near $100 a barrel as the Straight of Hormuz continued to be shuttered, choking off roughly one-fifth of the world’s oil supply.
Higher oil prices threaten to cloud import-dependent India’s inflation and growth outlook.
Rising US Treasury yields also weighed on Indian bonds. The US 10-year yield edged higher for a third day at 4.3193 per cent during Asian hours.
Separately, India’s central bank has urged state-run oil refiners to curb spot dollar purchases and tap a special credit line for their foreign exchange needs, Reuters reported.
The rupee was up 0.6 per cent at 92.66 per US dollar. A stronger currency supports Indian bonds by easing inflation risks, reducing pressure on the central bank to keep rates elevated, and improving the appeal of debt for foreign investors.
RATES
India’s overnight index swap rates surged, with a paying bias as US and domestic yields rose.
The one-year OIS rate was steady at 5.80 per cent on Thursday, while the two-year swap rate was at 6.02 per cent. The liquid five-year rate rose 5 bps to 6.42 per cent. ($1 = 92.9860 Indian rupees)