India bonds rise as oil shrugs off US sanctions concerns

Indian government bonds rose on Tuesday as plunging crude prices and strong demand at a state debt auction eased concerns over fresh U.S. sanctions on Iran and the Reserve Bank of India's rate outlook.

The benchmark 6.94% 2036 bond yield settled 2 basis points ‌lower at 6.8488%, ⁠reversing ⁠Monday's rise. Bond yields move inversely to prices.

Indian States raised 201 billion rupees ​through bond sales earlier in the day, with some issuers securing their tightest spreads ​over central government debt in months.


Gujarat locked yields at 7.47% for a 10-year note, narrowing its spread to 60 bps over the ​benchmark yield, which hovered at 6.87% at the ⁠time of ‌bidding. The gap slimmed most since early April ​and undercut ​the fiscal-year average of 72 bps.

Brent crude tumbled ⁠nearly 5% to $89.70 a barrel, tempering inflation fears even as Tehran vowed to retaliate against Washington's expanded sanctions.

Still, ​traders were wary of supply disruptions as only two tankers crossed the Strait of Hormuz on Monday, the lowest daily count since early May.

At home, Traders were also caught between inflation and rate-hike concerns and support from ample liquidity.

RBI's August policy Minutes reinforced ‌concerns that policymakers could raise rates if inflation risks broaden.

"With the possibility of further rate hikes, investors may consider ​a barbell ​strategy or maintain ⁠a low-duration bias to limit interest-rate risk while retaining reinvestment flexibility," said Deepak Agrawal, CIO-Debt at Kotak Mahindra AMC.

The debt market will remain shut on ​Wednesday for a local holiday.

RATES

Overnight indexed swaps sank on receiving pressure as traders cheered falling oil prices.

The one-year fell 6.25 bps to 5.8550%; the two-year dropped 9.25 bps to 6.04%; and the five-year eased 10 bps to 6.3475%.