Indian bonds flattish as oil spike offset by falling Treasury yields

Indian government bonds were little changed in early deals on Friday, as investors balanced a surge in oil prices against plunging US Treasury yields, while fresh supply kept demand tepid.

Oil prices moved sharply higher, with Brent crude rising above $114 per barrel, its highest level in five months, after Houthi attacks on Saudi Arabia heightened fears of further disruption to global energy supplies.

India is substantially exposed to a sustained rise in crude prices because it imports close to 90% of its oil requirements. Higher oil costs widen the country's import bill, impact the currency and inflation outlook and weaken public finances.


Meanwhile, US Treasuries rallied, with 10-year yield below 5%, following weaker economic data and an equity-market selloff linked to fears that spending on AI may not translate into near-term earnings growth as quickly as investors had expected.

"The move in crude is being driven as much by geopolitical risk premium as by immediate supply loss, while softer US yields suggest investors are worried that higher energy costs could weigh on global growth," a trader with a state-run bank said.

India's benchmark 6.94% 2036 bond yield was at 7.4778% as of 10:00 a.m. IST, after closing at 7.4596% in the previous session. Yields move inversely to bond prices.

New Delhi will raise 330 billion rupees ($3.48 billion) through the sale bonds later in the day.

Amid global headwinds, India's central bank this month raised the benchmark repo rate and shifted its policy stance to "calibrated tightening," signalling it may be prepared to tighten policy further if price pressures become more entrenched.

Rates

India's overnight indexed swap rates were broadly steady.

The 1-year OIS rate was at 6.57%, while the 2-year rate was at 6.63% and the liquid 5-year rate traded at 6.82%.