India bonds tick up tracking oil, market focus on US-Iran talks

MUMBAI: Indian government bonds ended marginally higher on Tuesday, as oil prices dipped amid optimism that talks between the U.S. and Iran would take place this week.

The U.S. has expressed confidence that peace talks with Iran will go ahead in Pakistan and a senior Iranian official said Tehran was considering joining, but significant uncertainty remained as the end of a ceasefire loomed.

India’s benchmark 6.48% 2035 bond yield ended at 6.889%, marginally lower than the previous close. Bond yields move inversely to prices.

The benchmark Brent crude contract was at $95 per barrel, reversing half of its post-Iran war gains. Higher oil prices are detrimental to India, which relies on imports to meet nearly 90% of its crude needs.

“We noticed that positioning in government bonds has become a lot lighter since the start of the year, and onshore flows might return on the back of a significant improvement in global risk sentiment,” said Matthew Kok, a portfolio manager at Eastspring Investments.

The Reserve Bank of India, which maintained its policy rate and stance earlier this month, has a baseline crude price assumption of $85 per barrel for the fiscal year ending March 2027.

“Higher energy prices will dampen GDP growth, widen the trade deficit and increase fiscal risks through rising subsidy requirements,” credit rating agency Moody’s said in a note.

Rates

India’s overnight index swap rates ended barely changed, with volumes drying up as traders awaited cues on direction of interest rates.

The one-year OIS rate ended at 5.7825%, while the two-year swap rate closed at 5.9825%. The liquid five-year OIS rate settled at 6.36%.