India bonds set to rally as oil plunges on Mideast peace deal hopes

MUMBAI: Indian government bonds are poised to extend their gains in early trading on Friday, supported by a decline in oil prices, as concerns over a major escalation in US-Iran tensions eased.

Focus would also be on fresh debt supply, with New Delhi set to raise 320 billion rupees ($3.34 billion) through a bond sale.

The yield on the benchmark 6.94% 2036 note is seen in the 6.88%-6.94% range, according to a private bank trader.

It closed at 6.9240% on Thursday.

Yields move inversely to bond prices.

“Bulls have got a fresh lease of life as the war finally seems to be moving closer to its end,” the trader said.

Oil prices fell more than 1% in Asian hours, extending losses from the previous session, after US President Donald Trump cancelled plans to strike Iran.

Trump, in a social media post, said he called off strikes because discussions had advanced to the highest levels of Iran’s leadership and a broad coalition of regional powers, without describing details.

The benchmark Brent crude contract has moved below $90 per barrel to its lowest level in two months.

India imports about 90% of its crude oil, leaving the economy vulnerable to oil price swings. Sentiment in the Indian bond market remains supportive after the central bank announced measures last week to attract foreign inflows, support the rupee and strengthen external balances.

The Reserve Bank of India allowed lenders to raise foreign currency deposits from non-residents and agreed to absorb the hedging costs.

It also offered state-run companies a 150-basis-point discount on hedging costs to support overseas fundraising.