India bonds decline as debt supply caution overpowers oil moves

MUMBAI: Indian government bonds turned lower after a flattish open on Thursday, as caution before heavy debt supply outweighed the impact from retreating oil prices.

The yield on the benchmark 6.94% 2036 bond was at 6.8619% as of 10:30 a.m. IST after closing at 6.8488% on Tuesday. Indian fixed income markets were shut on Wednesday.

New Delhi is set to raise 340 billion rupees ($3.56 billion) through sale of the benchmark paper on Friday, which will take its outstanding to 1.80 trillion rupees.

“Concerns of how the auction will go are having a larger impact for now, as the sentiment has completely changed after the policy minutes,” the trader said.

Last week, minutes of the Reserve Bank of India’s August monetary policy showed policymakers were open to raising rates if inflation risks materialise and broaden.

The next policy decision is due on October 7, and the central bank will have only one inflation print before that.

Retail inflation stood at 4.45% for July. Benchmark Brent crude oil prices eased for the fourth straight session to around $87.4 per barrel in Asian hours on Thursday, notching a nearly 7.5% decline in the period, on expectations that talks between Iran and Qatar may open the key Strait of Hormuz.

The strait used to transit a fifth of the global oil and natural gas shipments before the US-Israeli war with Iran started on February 28.

Since Iran worked to shut the waterway in response, oil flows have dropped to about one-quarter of their pre-war level, according to ship-tracking data.

Easing oil prices would benefit large energy importers like India, as expensive oil risks fanning the country’s inflation and straining government finances.