Indian government bonds are expected to extend losses on Tuesday after elevated oil prices
and rising U.S. Treasury yields triggered the sharpest selloff
since October 2023 in the previous session, while the focus is
on a mega state debt sale.
The benchmark 6.48% 2035 bond yield will
likely hover between 6.81% and 6.87%, a private bank trader
said, after ending at 6.8379% on Monday. Bond yields move
inversely to prices.
“Bond markets should be tricky today as the U.S. is showing
a keen interest in resolving the Middle East war, raising hopes
that the situation will return to normal in a few days, but oil
still remains above $100 per barrel,” the trader said.
The benchmark Brent crude contract was off highs on Tuesday,
but hovered near $103 per barrel as Iran denied that it held
talks with the United States to end the war in the Gulf,
contradicting President Trump, who said a deal could be reached
soon.
The 10-year Treasury yield was also off highs but stayed
close to 4.40%, after breaking that level for the first time in
nearly eight months on Monday.
The war is in its fourth week with no end in sight about an
end, keeping oil prices up amid supply disruptions.
Higher oil prices are negative for India, the world’s
third-largest crude importer, as they threaten to worsen
domestic inflation and the current account deficit.
Meanwhile, Indian states will aim to raise 574 billion
rupees ($6.14 billion) through bond sales on Tuesday, nearly 100
billion rupees more than scheduled and the highest quantum for
this financial year.
If successful, it would push state debt issuance to a record
for the current quarter and fiscal year.
RATES
India’s overnight index swap (OIS) rates are expected to move
with a paying bias, tracking global developments.
The one-year OIS rate ended at 5.97%,
while the two-year OIS rate closed at 6.17%.
The five-year swap rate settled at 6.52%.
($1 = 93.5150 Indian rupees)
(Reporting by Dharamraj Dhutia; Editing by Sonia Cheema)