Indian bonds firm up on steady oil, upcoming RBI buying

Indian government bonds gained early on Wednesday after global oil prices eased from multi-year highs, while investors also awaited details of the central bank's upcoming bond purchases on Friday. The benchmark 6.48% 2035 bond yield eased 2 basis points to 6.6532% (as of 10:45 a.m. IST), versus 6.6737% ‌on Tuesday. Bond yields ⁠move ⁠inversely to prices. The benchmark Brent crude oil contract stayed below the $90 per barrel on Wednesday, after media reports that the International Energy Agency has proposed the largest release of oil reserves in its history to offset supply disruptions stemming from the U.S.-Israeli war with Iran.

Oil plunged more than 11% in the previous ​session, its biggest drop since 2022, on hopes ⁠of a ‌de-escalation in the conflict. For India, the third-largest importer of ​crude, rising ​oil hurts its inflation, growth and rates outlook. The South ⁠Asian nation has invoked emergency measures to divert gas ​supplies to households and for transport fuel.

"If crude stabilises below $90, ​inflation should remain broadly within the Reserve Bank of India's tolerance band, allowing policy to stay neutral," said Harit Oberoi, group vice president and debt head, at Motilal Oswal Wealth Management. With inflation at 2.75% in January and well below the central bank's 4% target, a rate ‌hike does not appear to be on the horizon, a source familiar with the RBI's thinking told Reuters.


India's February inflation data ​is due ​on Thursday, with ⁠a Reuters poll pegging it at 3.10%.

Separately, traders are betting the RBI may include the benchmark 10-year bond in its scheduled open market purchase worth 500 ​billion rupees ($5.44 billion) on Friday.

RATES

India's overnight index swap (OIS) rates mildly eased as traders watched oil for directional cues. The one-year OIS was down 1.25 bps at 5.7%, the two-year rate fell 1.75 bps to 5.8750% and the five-year rate fell 1 bp each to 6.2650%. ($1 = 91.8730 Indian rupees)