Indian bonds fall for third week as Trump remarks stoke oil prices

MUMBAI: Indian bonds fell for a third straight week as U.S. President Donald Trump’s threat of more aggressive strikes on Iran drove oil back above $100 a barrel, clouding India’s macroeconomic outlook before an interest rate decision next week.

With no end in sight to the Middle East conflict, risks are mounting for India’s oil-import-dependent economy. Rising crude has battered shares and the rupee amid concerns that an extended conflict could threaten India’s growth-inflation balance.

Crude staying above $85 a barrel could slow economic growth to 6.5%, lift inflation to 4.3% and widen the current account deficit in fiscal 2027, rating agency ICRA said in a note.

The RBI’s next policy decision is due April 8 and a majority of economists polled by Reuters expect no change in rates.

India’s benchmark 6.48% 2035 bond yield ended the holiday-shortened week up 10 basis points at 7.134%, hovering at levels last seen in May 2024.

The rupee bounced back sharply to post its best one-day gain in over a decade after the RBI doubled down on curbing speculation against the currency while shares ended a tad higher.

“10-year yields are biased to rise further above 7% due to potential fiscal slippage and likely continued risk premia,” said Michael Wan, senior currency analyst at MUFG.

Foreign banks posted net sales of 594 billion rupees ($6.4 billion) of Indian bonds in March, their biggest monthly outflow on record, clearinghouse data showed.

On Thursday, demand was muted at the first debt auction of the fiscal year.

Indian financial markets will be closed on Good Friday.

Rates

India’s overnight index swaps continued rising as the Gulf war kept investors mired in uncertainty.

The one-year OIS rate rose 12.75 bps to 6.3725%, while the two-year rate was up 9 bps at 6.57%. The five-year rate jumped 7.5 bps to 6.865%.