India bonds slip as shaky Mideast truce props up oil

Indian government bonds retreated on Thursday, giving back some of the previous session's sharp gains, as oil resumed climbing amid doubts whether the U.S.-Iran ceasefire would hold and concerns that flows via the Strait of Hormuz would remain restricted.

The benchmark 6.48% 2035 bond yield ‌was up ⁠4 basis points ⁠at 6.9407% as of 11:15 a.m. IST. It settled at 6.8984% on Wednesday - its biggest single-session decline in nearly four years.

Bond yields move inversely to prices.


The Brent crude contract rose 2.5% to $97.10 per barrel, after its biggest daily drop since April 2020 as hopes of a sustained truce faded after Iran said it would be "unreasonable" to proceed ⁠with talks ‌to forge a permanent peace deal following renewed tensions.

Meanwhile, the Reserve Bank of India left rates unchanged on Wednesday, as ⁠it waits for the impact of the war to play out on the economy but warned of higher inflation risks, citing surging crude prices and possible shortages of key inputs such as gas.

"With the RBI's commitment to keep system liquidity at neutral to surplus and inflation well within its comfort zone, we expect a pause in interest rate for the ‌next two policy meetings," said Devang Shah, fixed income head at Axis Mutual Fund.

India's banking system liquidity surplus stood at 4.57 trillion rupees ($49.32 billion), the highest ⁠in four years.

Separately, investors are bracing for New Delhi's 340-billion-rupee sale of the 10-year note on Friday, which will add to supply in a low-demand market.

RATES

Paying resumed in India's OIS after the previous session's record drop as oil risks lingered.

The one-year OIS rate and the two-year OIS rate were up 4 bps each at 5.89% and 6.07%. The most liquid five-year rose 7 bps to 6.40%. ($1 = 92.6520 Indian rupees).