Indian bonds seen in firing line as US-Iran tensions erupt again

MUMBAI: Indian government bonds are seen declining in early deals on Tuesday, as a fresh flare-up in the US-Iran issue has pushed up crude oil prices again, raising concerns that the conflict will continue to impact supply for a longer duration.

The benchmark Indian 6.48% 2035 bond yield is expected to drift within the 7.00%-7.05% range, according to a trader with a private bank, after closing at 7.0194% on Monday.

Bond yields move inversely to prices.

The upside may be capped as New Delhi plans to sell a new 10-year bond worth 340 billion rupees ($3.58 billion) this week.

“For India’s bond market, higher oil prices mean higher inflation fears, and that keeps traders defensive,” the trader said.

Oil prices rose overnight as Iran struck multiple ships in the Strait of Hormuz and ignited a UAE oil port on Monday, responding to President Trump’s deployment of the US Navy to secure shipping. The US military reported that two US merchant ships successfully passed through the Strait.

Though there has been a ceasefire since early April, Iran has kept shipping through the Strait of Hormuz, a conduit for about 20% of global oil supplies, largely shut.

The benchmark Brent crude contract jumped almost 6% on Monday, and was hovering around $114 per barrel in Asian hours, up nearly 60% since the war started on February 28.

Higher energy costs will impact India, which imports nearly 90% of its crude needs, as it could add pressure on inflation and fiscal deficit.