Indian government bonds rose on Wednesday as a decline in crude prices on expectations of a
U.S.-Iran peace deal lifted investor sentiment and eased
domestic inflation concerns.
The benchmark 6.48% 2035 bond yield was at
6.9821% as of 10:30 a.m. IST, after closing at 7.0184% on
Tuesday. Bond yields move inversely to prices.
“The fall in crude has eased some pressure in the bond
market, especially as investors are hopeful that U.S.-Iran
tensions could cool, though they remain cautious until there is
more clarity on a deal,” a trader with a primary dealership
said.
Oil prices eased on Tuesday and extended declines in Asian
hours on Wednesday on expectations that supply from the Middle
East could resume soon.
On Tuesday, U.S. President Donald Trump unexpectedly said he
would briefly pause an operation to help escort ships through
the Strait of Hormuz, citing progress toward a comprehensive
agreement with Iran, without giving details.
Despite a ceasefire, the strait, which typically carries
about one-fifth of the world’s oil and natural gas supply, has
been largely shut since the war began on February 28.
Benchmark Brent crude has eased more than 5% since Monday’s
close, and was hovering around $108 per barrel in Asian hours.
Elevated energy prices are detrimental for India – the
world’s third-largest oil importer – as they could stoke
inflation and widen the fiscal deficit.
Meanwhile, traders await a crucial debt sale on Friday, when
New Delhi plans to raise 340 billion rupees ($3.58
billion)through the sale of a new 10-year paper, which would
replace the existing benchmark in coming weeks.
The market anticipates the cutoff yield to be around 2 bps
lower than the current benchmark.
RATES
India’s overnight index swap (OIS) rates plunged, as traders
unwound heavy paid positions built over the last few days.
The one-year OIS rate was at 5.98%, while
the two-year swap rate was at 6.21%. The
five-year rate was at 6.61%.