Indian bonds may look to add to their winning momentum in opening trades on Tuesday as Brent crude stayed below $100 per barrel, and Treasury yields eased, but the focus remains on an escalation between U.S. and Iran, which could hurt demand.
The benchmark 6.48% 2035 bond yield is expected to move in the 7.00% to 7.06% range, a private bank trader said. It had ended at 7.0270% on Monday.
Bond prices move inversely to yields.
“There could be some early gains as bulls will try to push yields further down, but we may see some selling pressure emerging, as oil has seen an uptick after news of fresh attacks,” the trader said.
Oil prices rose with the benchmark Brent up over 2% in Asian hours after the U.S. military carried out strikes in southern Iran in what it described as defensive actions, keeping markets on edge as a deal to end the war still eludes.
This comes after U.S. President Donald Trump on Saturday had said that Washington and Iran had largely negotiated a memorandum of understanding on a peace deal that would reopen the Strait of Hormuz.
Analysts have cautioned that even if a deal is finalised, a full recovery in energy flows is unlikely to be immediate and shipping could take months to normalise.
Elevated oil prices impact India’s inflation, current account deficit as well as the government’s fiscal math, while adding pressure on the central bank to hike interest rates.
RATES
India’s overnight index swap rates that are more sensitive to interest rate expectations could trade with a rising bias, after a sharp drop on Monday.
The one-year swap ended at 6.15%, while the two-year rate closed at 6.35%. The five-year rate settled at 6.67%.