India bonds end three-day losing streak but post second straight weekly decline

Indian government bonds snapped a three-day losing streak on Friday but posted a second straight weekly decline as surging oil prices and higher U.S. Treasury yields kept pressure on sentiment.

The benchmark 6.94% 2036 bond yield ended at 6.8253%, after closing at 6.8413% on Thursday. It rose to 6.8652% earlier in the ‌session, its ⁠highest level ⁠in five weeks.

For the week, the yield rose four basis points, after rising seven bps ​last week.


Oil prices climbed for most of the week as the conflict between the United States and Iran fuelled fears of supply disruptions, pushing Brent crude briefly above $100 a barrel for the first time in two months.

Brent eased on Friday ​but was still on track for a ⁠gain of more than ‌10% this week, after rising 16% and 5.4% ​over the previous ​two weeks.

The rally has reignited concerns that inflation could ⁠prove more persistent in both India and the United States.

The ​10-year U.S. Treasury yield hit 4.70%, its highest level since ​January 2025, as investors frontloaded bets on a rate hike from the Federal Reserve.

The odds of a rate hike by the Fed is July rose to 30% from 13% last week, and for such an action in September stand at 80%, up from 58%.

The silver lining for bond market ‌came from continued purchases from foreign investors, even though at a slower pace.

Robust demand for bonds continued, while demand across ​the curve shifted towards ​the short end ⁠in July, with nearly 47% of total foreign purchases seen in bonds with up to five-year maturity, Soumya Mohanty, an analyst for APAC Rates Strategy with HSBC said.

RATES

India's ​overnight index swap (OIS) rates jumped for the second week in line with the reaction seen in bond yields.

The one-year swap rate ended at 5.98%, and the two-year rate ended at 6.19%. The most liquid five-year rate jumped 11 bps to settle at 6.49%, after jumping 21 bps last week.