Indian bonds end lower under pressure from oil, RBI absence

MUMBAI: Indian government debt weakened for a third day on Monday as oil prices stayed elevated, amplifying inflation worries and pressure on the rupee, while the Reserve Bank of India unnerved traders by holding back from more debt-buying.

The benchmark 6.48% 2035 bond yield shut at 6.7059%, compared with 6.6798% on Friday. Bond yields move inversely to prices.

Brent crude futures held above $100 a barrel as the U.S.-Israeli war on Iran, now into its third week, choked global oil supply. The contract has risen more than 40% so far this month.

The war has triggered India’s worst gas crisis in decades, with the government cutting supplies to industry to prioritise household cooking gas.

Citi estimates that three months of supply disruptions could shave 20-30 basis points off India’s growth in fiscal year 2027, raise inflation by 50-75 bps, widen the fiscal deficit by 10 bps and add $25 billion to the current account deficit.

The RBI might resort to a rate hike later in the year, Barclays said in a note.

New Delhi has proposed a 573-billion-rupee ‘economic stabilisation fund’ to respond to unanticipated supply chain disruptions and unexpected shocks to the economy, Finance Minister Nirmala Sitharaman told parliament on Friday.

Meanwhile, the RBI did not announce more open market operations (OMOs), against traders’ hopes. Since the war broke, the RBI has conducted 1 trillion rupees ($10.84 billion) of OMOs and net bought bonds worth 572.1 billion rupees in the secondary market, anchoring yields and offsetting liquidity drain.

The USD/INR pair has risen to a record high at 92.49 in 2026, despite RBI’s efforts to halt the surge.

Rates

India’s overnight index swaps continued their oil-led surge. The one-year OIS nudged higher to 5.8425%, while the two-year rate rose 1.25 bps to 6.05%. The five-year rate surged 4 bps to 6.4275%.