Indian government bonds
joined a global rout early Monday as a rally in oil stoked
inflation fears for the world’s third-largest crude importer,
while fading hopes of an end to the Iran war further soured
sentiment.
The benchmark 6.48 per cent 2035 bond yield was up about
7.5 basis points at 7.1427 per cent by 10:55 am IST – hovering around
a six-week high, and on the verge of breaking out to hit its
highest in two years.
Bond prices move inversely to yields.
War fears escalated after a UAE nuclear plant was attacked
over the weekend, and US President Donald Trump weighed
further military action against Iran, threatening a fragile
ceasefire in place since early April.
Brent crude futures rose 1.69 per cent to $111 a barrel in Asian
hours, after gaining 8 per cent last week.
Bonds from Tokyo to New York were left nursing losses on Monday
after the fresh attacks in the Gulf. The yield on US 10-year
notehit a 15-month high of 4.6310 per cent, after surging 23 bps last
week.
Higher US yields erode the appeal of emerging-market debt
by narrowing the return premium, spurring foreign outflows and
putting pressure on the rupee.
The rupee also hit yet another all-time low on Monday, falling
0.36 per cent to 96.3125 per dollar.
“While we maintain the estimates for current account
deficit (CAD) to GDP ratio for fiscal year 2027 at 1.7 per cent,
assuming oil at $80/barrel on average, risks of CAD widening to
over 2 per cent are rising with oil prices remaining above $100,” said
Madhavi Arora, chief economist at Emkay Global Financial
Services.
Traders are also expecting the RBI’s surplus transfer to the
government this month, which could shore up liquidity and help
short-end rates.
RATES
India’s overnight index swap rates skyrocketed as traders
priced in imminent rate hikes.
The one-year swap was up 15.25 bps at 6.31 per cent,
while the two-year rate rose 18 bps to 6.56 per cent. The five-year
rate surged 18.25 bps to 6.8825 per cent.