Indian bonds end nearly flat as oil swings drive caution

MUMBAI: Indian government bonds ended little changed on Wednesday after a choppy trading session, as crude prices hovered near the $100-per-barrel mark despite falling more than 7% on reports of a possible U.S.-Iran ceasefire plan.

The benchmark 6.48% 2035 bond yield ended at 6.875%, after closing at 6.8681% on Tuesday. Bond yields move inversely to prices.

The benchmark Brent crude contract was down 6% at $98.1 per barrel after falling to as low as $97.15 earlier in the day. It touched an intraday high of $100.90.

Reports that the U.S. was seeking a month-long ceasefire to discuss a plan to end the war in the Middle East eased concerns over energy supply disruptions.

U.S. President Donald Trump said on Tuesday the United States 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 disrupted fuel shipments through the vital Strait of Hormuz, which typically carries about one-fifth of the world’s oil and gas 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.

“The investment strategy will be shaped by how the situation develops,” said Amit Modani, senior fund manager and lead for fixed income at Shriram AMC.

“While short-term volatility may create tactical trading opportunities, a prolonged disruption to the Strait of Hormuz would act as a structural external shock to India’s growth trajectory.”

Rates

India’s overnight index swap (OIS) rates ended down as receiving interest picked up after rates moved higher at the start of the session.

The one-year OIS rate ended at 5.9175%, while the two-year OIS rate ended at 6.12%. The liquid five-year swap rate settled at 6.49%.