MUMBAI: Indian government bonds tumbled in June, logging their biggest fall in 15 months, pressured by a shift of policy stance by the local central bank and higher crude oil prices following Iran-Israel strikes.
The yield on the benchmark 10-year bond rose 11 basis points to end the month at 6.3241%, the steepest monthly rise since April 2024. The yield fell 26 bps in April-June.
Meanwhile, the yield on the 6.75% 2029 bond climbed 16 basis points, marking its sharpest monthly rise in about 29 months.
Bond yields move inversely to prices.
The Reserve Bank of India cut rates by 50 basis points earlier this month, but in a surprise move, changed its stance to neutral from accommodative, triggering a sell-off in the market.
“The bear steepening trend accentuated after the monetary policy meeting as markets started to factor in the end of the rate-cutting cycle as the MPC changed the monetary policy stance,” said Puneet Pal, head of fixed income, PGIM India Mutual Fund.
“Yields continued to inch higher since then on profit booking and aversion to take fresh positions.”
Indian bonds also witnessed selling as oil prices rose after the U.S. attacked Iran’s nuclear facilities, deepening tensions in the Middle East, although those tensions have since subsided.
Benchmark Brent crude contract shot up to as much as $81.40 per barrel, the highest in five months.
The RBI also conducted a seven-day variable rate reverse repo (VRRR) auction last week, its first in seven months.
Reuters had reported earlier that the RBI sought market feedback to bring the call rates closer to the repo rate.
Rates
India’s one-year overnight index swap rate fell for a sixth month in June, while the two-year and the five-year OIS rates rose.
The one-year OIS rate fell nearly 5 basis points this month to close at 5.54%, while the two-year OIS rate rose 2 basis points to 5.51% and the liquid five-year was up nearly 3 basis points at 5.71%.
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