Indian bonds decline as oil uptick persists before fresh debt supply

Indian government bonds fell for a third straight session on Friday as oil prices climbed amid no resolution to the U.S.-Iran conflict, while traders braced for fresh supply from the weekly auction.

India's benchmark 6.48% 2035 bond yield stood at 6.9761% at 10:15 a.m. ‌IST after closing ⁠at ⁠6.9498% on Thursday.

New Delhi will raise 320 billion rupees ($3.40 billion) through a bond sale later in the day, including the liquid 30-year paper.


"Higher oil prices are clearly negative for Indian debt, and with supply ahead, the market has little reason to turn optimistic for now," said a trader at a private bank.

Oil prices rose further in Asian ⁠trade on ‌Friday on fears of renewed escalation in the Middle East after Iran released footage of commandos boarding a cargo ⁠ship in the Strait of Hormuz and reports said its air defences responded to "hostile targets."

U.S. President Donald Trump said Iran may have rearmed "a little bit" during the ceasefire, though he added the U.S. military could wipe out those capabilities in a single day.

Markets are increasingly seeing the ceasefire as a possible precursor to a broader conflict rather than a path to ‌peace.

Brent crude has surged nearly 50% since the start of the U.S.-Iran war on February 28.

The rise in oil prices is negative for ⁠India, which depends on imports for nearly 90% of its crude oil requirements. These purchases account for roughly one-fourth of the country's total import bill.

RATES

India's overnight index swap rates rose further as traders grow more confident to add paid bets with oil prices remaining elevated.

The one-year OIS rate was at 5.xx%, while the two-year swap rate was at 6.xx%. The liquid five-year OIS rate rose xx bps to 6.xx%.

($1 = 94.1600 Indian rupees)