India 10-year bond logs best close in 7 weeks as oil prices ease
- The benchmark 6.48% 2035 bond yield fell 4.5 basis points to 6.9082%
India's 10-year government bond yield reached a seven-week low, driven by falling crude oil prices and central bank efforts to boost foreign investment, despite lingering geopolitical and economic concerns.
- Declining crude oil prices and Indian bond yields.
- Central bank measures attracting foreign investment.
- India's economic vulnerability to global oil prices.
MUMBAI: India’s 10-year government bond closed at its highest in seven weeks on Tuesday, as a decline in crude oil prices enhanced the appeal of Indian debt, building on positive momentum from Friday’s central bank measures aimed at boosting foreign inflows to the country.
The benchmark 6.48% 2035 bond yield fell 4.5 basis points to 6.9082%, its lowest level since April 21, extending its decline into a fourth straight session. Bond yields and prices move inversely.
Oil prices eased after Iran and Israel said they had halted attacks following an appeal from U.S. President Donald Trump. Brent crude futures were last down 1.93% at $92.41 a barrel in Asian trade.
Still, some traders worried the positives would support sentiment only in the “short-term”, unless India mitigates the rising costs from the U.S.-Israeli war with Iran war.
India imports about 90% of its oil, leaving its economy highly exposed to the war, including the effective blockade of the Strait of Hormuz.
Steps taken by the Reserve Bank of India last week to encourage dollar inflows and make it easier to invest in Indian bonds have seen foreign investors ramp up purchases of the country’s debt by a net $800 million over the past two days.
The central bank expects inflation to average 5.1% in the year to March 2027, up from 3.48% in April, while growth is seen slowing to 6.6% from 7.7% last year.
On the fiscal front, the government has set a fiscal deficit target of 4.3% of GDP for this financial year, but a Reuters poll sees it widening to 4.7%.
The Reserve Bank of India’s measures are creating some confidence, but rising U.S. yields and money going into U.S. equities along with the persistent war risks are still overwhelming for the market, said Alok Singh, head of treasury at CSB Bank.
Rates
India’s overnight index swap rates eased as lower oil boosted sentiment.
The one-year swap ended at 5.99%, down 5.5 bps, while the two-year rate INR2YMIBROIS=CCdropped 8.25 bps to 6.17%. The five-year rate 11 bps to 6.43%.
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