India bonds steady as value buying offsets Iran war flare up

Indian government bonds steadied on Tuesday, with the benchmark 10-year snapping a five-session slide, as bargain buying picked up after oil prices showed no further spike despite renewed U.S.-Iran attacks.

India's benchmark 6.48% 2035 bond yield settled at 7.0184% versus 7.0194% on Monday. Bond yields ‌move inversely to ⁠prices.

A ⁠fragile truce in the Middle East was under strain after the U.S. and Iran ​exchanged fire in the Gulf on Monday as they wrestled for control of ​the Strait of Hormuz.


The vital waterway, which carries a fifth of global energy supplies, has largely remained shut since the U.S. and Israel began ​attacks on Iran on February 28.

"Oil ⁠prices have remained ‌contained despite the crisis, and stable U.S Treasury yields have also offered support to bonds today, leading to some ⁠short-covering," said Debendra Kumar Dash, senior vice president of treasury at AU Small Finance Bank.

Oil steadied during Asian hours after rising 6% on Monday. Benchmark Brent crude was last at $113 a barrel. U.S. Treasury yields also eased, with the 10-year yield down 1 basis point at 4.4322%.

The Indian rupee, however, slid to a record low of 95.4325 on Tuesday, with analysts expecting further weakening ‌as the war drags on.

Separately, New Delhi plans to sell a new 10-year bond worth 340 billion rupees ($3.58 billion) ​this week, which ​will likely be issued ⁠at a coupon above 7% for the first time in two years, as the risk of higher inflation and macro pressures drive up funding ​costs, analysts said.

RATES

India's OIS rates closed mixed as traders paused to assess geopolitical developments.

The one-year OIS rate was up 1 bp at 6.0575%, while the two-year swap rate was down 2 bps at 6.28%. The five-year rate was flat at 6.6725%.

($1 = 95.0875 Indian rupees)