India bonds slip as Brent tops $100 per barrel

Indian government bonds fell early Thursday, wiping out gains from the previous two sessions as a sharp spike in oil prices and a slump in U.S. Treasuries triggered a selloff, with traders hoping for central bank support to limit losses. The benchmark Brent crude contract topped $100 per barrel after Iran drowned ‌two Iraqi ⁠oil tankers ⁠in their waters, spreading the war across the Middle East and casting a pall on already hit global energy supplies.

If crude holds at $100 a barrel, the central bank is likely to retain a hawkish stance in oil-import dependent India to limit sharp rupee depreciation and guard against an "imported inflation" shock, economists at Elara Capital said in a note.

The 10-year U.S. yield also neared ⁠4.25% amid ‌rising oil prices.


The benchmark 6.48% 2035 bond yield was up 3 basis points at 6.6677% as of 10:45 a.m. IST, after ⁠hitting a high of 6.6940%. It had eased by 8 bps over the previous two days, buoyed by open-market operations and likely secondary-market purchases by the central bank.

An investor category that includes the Reserve Bank of India and other long-term investors net bought bonds worth 53 billion rupees ($574 million) on Wednesday, clearing house data showed. The RBI also likely sold dollars, traders said, to anchor the rupee as it hit ‌92.3450, just shy of a record low.

"We expect the RBI to continue buying in the secondary market to offset any liquidity drain from its rupee ⁠defence," a private-bank trader said. "This will help cap a rise in yields, but traders will likely remain light-footed."

Separately, participants were disappointed that the RBI did not include the 10-year benchmark in its 500-billion-rupee open-market purchase on Friday.

RATES

India's long-term overnight index swaps skyrocketed on oil spike and renewed inflation worries.

The one-year OIS was up 7.25 bps at 5.81%, while the two-year rate rose 6.25 bps to 6%.

The five-year rate jumped 5.25 bps to 6.4%.

($1 = 92.3450 Indian rupees)