India bonds unable to hold gains as oil fluctuations, debt supply hurt

MUMBAI: Indian government bonds swung between modest gains and flat trading as crude oil prices remained near the $100-per-barrel mark after dropping more than 7% earlier in the day on reports of a US-Iran ceasefire plan in the works.

The benchmark 6.48% 2035 bond yield was at 6.8633% as of 10:15 a.m. IST, after ending at 6.8681% on Tuesday. Bond yields move inversely to prices.

“Bonds are expected to keep swinging if oil prices stay volatile,” trader with a state-run bank said.

The benchmark Brent crude contract was trading 4.7% lower at $99.60 after falling as low as $97.15 earlier in the day as reports about the US seeking a month-long ceasefire to discuss a plan to end the Middle East war eased supply disruption worries.

US President Donald Trump said on Tuesday the US was making progress in negotiating an end to the war with Iran, while a source confirmed that Washington had sent Iran a 15-point settlement proposal.

The war has led to a halt in shipments of oil and liquefied natural gas through the Strait of Hormuz, which typically carries about one-fifth of the world’s gas and crude supply.

Elevated oil prices are detrimental for India, the world’s third-largest crude importer, threatening to worsen domestic inflation and widen the current account deficit.

“For India, every $10/barrel swing in crude typically shifts the current account deficit by 0.3–0.5 percentage points of GDP and raises retail inflation by 20–30 bps, depending on pass through,” said Rajeev Sharan, head of research at Brickwork Ratings.

Capping the gains in bond prices were states’ plans to raise 395.4 billion rupees ($4.21 billion) through bond sales on Friday, after already raising a record 12.31 trillion rupees in this financial year.