India 10-year bond yield clings to 6.85%; traders eye oil moves amid sanctions threat

Indian government bonds were little changed on Monday after edging lower at the open, as traders awaited moves in oil prices ahead of an expected U.S. announcement on additional sanctions against Iran.

The yield on the benchmark 6.94% 2036 bond was at 6.8595% as of 10:00 a.m. ‌IST, after closing ⁠at ⁠6.8495% on Friday. The yield posted its biggest weekly rise of the financial year last ​week.

Indian debt markets are shut on Wednesday for a local holiday.


"We expect to hold ​current levels for the rest of the day. Our next move will depend on whether crude prices head toward $90 or $100 a barrel," said ​a trader at a primary dealership.

The U.S. ⁠Treasury Secretary ‌is scheduled to brief media later in the day ​after warning ​that Washington could impose "the toughest sanctions in history" on Iran. ⁠President Donald Trump has also threatened sanctions against countries ​that continue to trade with Tehran.

Iran has denounced the planned ​U.S. measures, while calling out for a diplomatic resolution.

The benchmark Brent crude held above $92 a barrel, heightening concerns for major oil importers such as India.

Elevated crude prices could stoke inflation, widen the current account deficit and add pressure on government finances.

The minutes of the Reserve ‌Bank of India's August policy meeting published last week, showed that policymakers remain open to raising interest rates if inflationary pressures ​emerge and become ​more broad-based.

Governor Sanjay ⁠Malhotra said signs of such spillovers could justify policy tightening, while Deputy Governor Poonam Gupta said the case for a rate hike could develop later ​this year.

RATES

India's overnight indexed swap rates did not witness any major activity after posting massive spike in the previous week.

The one-year and the two-year swaps were not yet traded rate, after ending at 5.9025% and 6.1250% on Friday, while the five-year rate was steady at 6.43%.