India bonds flat as oil prices shrug off US curbs on Iran

Indian government bonds ​were flat early on Tuesday, ​following a selloff, as oil absorbed stringent U.S. sanctions without ​a spike, allaying jitters for the world's third-largest oil importer.

Traders also awaited states' 201-billion-rupee ($2.10 billion) debt sale later in the day, which will test appetite.

The yield on ‌the benchmark ⁠6.94% ⁠2036 bond was flat at 6.8708% as of 12:10 p.m. IST. The yield climbed ​2 bps in the previous session.


Bond yields move inversely to prices.

With the U.S.-Israeli ​war with Iran approaching six months, Treasury Secretary Scott Bessent on Monday announced what he called an "economic onslaught" targeting Iran's global financial links. The measures ​broadened sanctions, while warning countries and firms ⁠against doing business ‌with Tehran.

Before the announcement, Iran had threatened ​a military response ​and deeper cuts to Gulf oil exports if ⁠Washington imposed further economic measures.

And yet, Brent crude held near $92 a barrel as investors wanted clearer signs of supply disruption.

"A lot of factors are weighing on bonds - the Gulf crisis, weakening currency, and inflation, and we may see some selloff after the discounted swap-window closure," said Umesh Tulsyan, managing director at Sovereign Global Markets.

"We may see 6.90% - 6.95% on the 10-year yield soon."

Traders ‌are also caught between inflation and rate-hike concerns and support from ample liquidity, which keeps demand for bonds strong.

Minutes ​of the Reserve ​Bank of India's ⁠August monetary policy showed policymakers were willing to raise rates if inflation risks materialised and broadened.

Banking-system liquidity surplus is on track to remain above 3 ​trillion rupees ($31.35 billion) for its longest stretch in four years.

RATES

Overnight indexed swaps eased as crude prices shrugged off U.S. sanctions.

The one-year fell 1.5 bps to 5.9025%; the two-year dropped 3 bps to 6.1050%; and the five-year eased 2.75 bps to 6.42%.