India bonds set to slide on relentless oil upswing; Fed meet in focus

MUMBAI: Indian government bonds may continue to slide in early deals on Wednesday, as oil stays elevated with US extending its blockade of Iranian ports, while investor focus will also be on the Federal Reserve.

The benchmark 6.48% 2035 bond yield is expected to drift within the 6.96%-7.02% range, according to a private-bank trader, after closing at 6.9837% on Tuesday.

Bond yields move inversely to prices.

“It has become redundant witnessing uptick in oil prices every day, which drags up bond yields by a few basis points, and today would be no different,” the trader said, adding that the 10-year paper may see some solace around the 7% mark.

The benchmark Brent crude contract surged to its highest level in a month on Tuesday.

It gained again during Asian hours on Wednesday after reports that US President Donald Trump instructed aides to prepare for an extended blockade of Iranian ports.

Though there has been a ceasefire in the US-Iran war for the last three weeks, the conflict remains deadlocked, with Iran shutting shipping through the Strait of Hormuz, a conduit for about 20% of global oil supplies.

The benchmark crude contract has climbed around 55% over the last two months, since the war began on February 28. Elevated oil poses a significant risk for India, which imports nearly 90% of its crude requirements.

Higher prices could widen the import bill, stoke inflation, and strain the fiscal deficit.

Meanwhile, the Fed will announce its policy decision late evening, which would be Jerome Powell’s last as chair.

While no change in rates is expected, traders would eye the parting comments on the impact of disruptions to energy prices.