India 10-year bond yield hits 5-week high on rising oil and war jitters

MUMBAI: India’s 10-year government bond yield rose to a five-week high on Tuesday, as fading hopes of a U.S.-Iran peace deal and rising crude oil prices overshadowed a softer-than-expected April inflation reading.

Hopes for a deal dimmed after Donald Trump said a ceasefire with Iran was “on life support”. Concerns about oil supply deepened after a senior officer in Iran’s Islamic Revolutionary Guard Corps Navy said Tehran had expanded its definition of the Strait of Hormuz into a “vast operational area” far wider than before the war.

India’s benchmark 6.48% 2035 bond yield settled at 7.0458%, its highest since April 7 and up 1.4 basis points from Monday’s close. The yield on the new 10-year 6.94% 2036 bond was up 2 bps at 7.0033%.

Bond yields move inversely to prices.

Market unease also grew after Prime Minister Narendra Modi urged citizens to conserve fuel and foreign reserves by adopting measures such as working from home and curbing travel.

The rupee hit a record low of 95.4325, while stocks erased about $115 billion from the market value of companies listed on the National Stock Exchange.

Separately, India’s retail inflation quickened to 3.48% in April, driven by higher food prices, government data showed.

That was lower than a forecast of 3.8% in a Reuters poll. Still, traders remain wary of the potential inflationary impact of a prolonged war in the Middle East for net energy importer India.

“The trajectory of inflation will depend on the duration of elevated oil prices and the extent of pass-through to domestic consumers,” said Avnish Jain, chief investment officer for fixed income at Canara Robeco Mutual Fund.

Rates

The one-year swap rate rose 7.25 bps to 6.045%, while the two-year swap rate jumped 5.25 bps to 6.2825%. The most liquid five-year OIS rate was up 4.5 bps at 6.6750%.