India bonds slip as oil risk, truce doubts weigh

MUMBAI: Indian government bonds fell on Friday, ending the week flat with U.S.-Iran truce talks still uncertain and the blocked Strait of Hormuz keeping oil prices elevated.

The prospects for peace talks between the U.S. and Iran fluctuated this week, and benchmark Brent crude oil futures stayed above $90 a barrel, keeping traders on edge. On Friday, President Donald Trump said a deal to end the war in Iran could be reached soon, without specifying timing.

“A lot depends on what is the outcome of the proposed ceasefire talks, once the existing one ends on April 21/22 and on the flow of ships through the Strait,” said Alok Sharma, head of treasury at ICBC, Mumbai.

India’s benchmark 6.48% 2035 bond yield settled at 6.9049%, versus 6.8884% on Thursday. It was little changed compared to last week’s close of 6.9119%, when it logged the biggest drop since October 2019.

Bond yields move inversely to prices.

The benchmark 10-year bond yield is likely to trade between 6.75-6.95% in the near term, with upward bias, analysts at Kotak Mahindra Bank wrote in a note.

The central bank’s foreign exchange restrictions to support the rupee have also dulled the appeal of Indian bonds by making it harder and more expensive to hedge exposure. Overseas investors have sold debt worth $2.26 billion since the war began on February 28.

Separately, New Delhi sold 320 billion rupees worth of 5-year and 40-year notes earlier in the day, but demand remained muted after the auction.

Rates

India’s overnight index swap rates were flat-to-higher as U.S. and domestic yields rose.

The one-year OIS rate was up about one basis point at 5.8075%, while the two-year swap rate was steady at 6.01%. The liquid five-year rate rose 2.5 bps to 6.3925%.