Updated: Indian bonds fall for third session as oil prices near $100 a barrel

Indian government bonds fell for a third straight session on Thursday as escalating tensions in the Middle East drove crude oil prices closer to $100 a barrel, while higher U.S. Treasury yields also weighed on sentiment.

The benchmark 6.94% 2036 bond yield ended at 6.8413%, ‌its highest ⁠in a ⁠month, after closing at 6.8012% on Wednesday. The yield has climbed about 5 ​basis points over the last three sessions.

Brent crude futures rose for a fifth ​consecutive session, briefly approaching $99 a barrel in Asian trade, their highest level in seven weeks, as the widening conflict in the Middle East ​fuelled concerns over disruptions to global energy supplies.


Brent ⁠has rallied ‌12% this week after surging 16% last week, as ​U.S. ​strikes on Iran entered a 12th consecutive night, heightening ⁠concerns over further disruptions to regional energy supplies after ​the closure of the Strait of Hormuz.

For India, ​the impact is especially significant, as the nation imports nearly 90% of its crude oil needs, making it highly exposed to external supply shocks and price spikes.

A sustained rise in crude prices would likely widen India's import bill, worsen the current-account position, add ‌pressure on the rupee and revive inflation risks.

"Fiscal stimulus and a higher subsidy burden have increased the risk of ​higher issuance ​and weighed on ⁠demand... The risk of a food-price spike due to El Nino should keep rate-hike risks alive and weigh on duration demand," BofA Securities said ​in a note.

RATES

India's overnight index swap (OIS) rates moved higher for a fifth straight session, absorbing the impact of oil and Treasury yields.

The one-year swap rate ended at 6.04%, while the two-year rate closed at 6.23%. The most liquid five-year rate settled at 6.53%.