Oil pain drags India 10-year bond to over 2-week low
- Benchmark 6.48% 2035 bond yield settled nearly 3 basis points higher at 6.9498%
MUMBAI: Indian government bonds buckled on Thursday, with the benchmark 10-year note at its lowest in more than two weeks, as oil prices vaulted past $100 a barrel on the U.S.-Iran standoff, bruising market sentiment in the oil-import-reliant nation.
A sustained rise in crude threatens India’s inflation and growth outlook and could widen the fiscal and current account deficit. India’s rate panel members have characterised the Iran war-driven oil price spike as a supply shock and opted to remain on hold to avoid policy mistakes.
The benchmark 6.48% 2035 bond yield settled nearly 3 basis points higher at 6.9498%, its highest since April 9, extending gains for a second straight session. It had closed at 6.9225% on Wednesday.
Bond yields move inversely to prices.
Benchmark Brent crude has risen nearly 15% so far this week to $103.66. It topped $100 a barrel on Wednesday for the first time since the ceasefire began on April 8.
Iran showed off its tightened grip over the Strait of Hormuz on Thursday, with a video of its commandos storming a cargo ship after the collapse of peace talks that Washington had hoped would open the shipping corridor, which carries a fifth of global energy supplies.
The world’s second-largest liquefied petroleum gas importer has been grappling with a severe shortage forcing the government to prioritise household supply over industrial requirements.
“We think the MPC members would want to see evidence of pass-through of higher energy and petroleum product prices in core inflation before taking any monetary policy action,” Goldman Sachs said in a note.
“We maintain our forecast of two 25-basis-point repo rate hikes this year, taking the repo rate to 5.75% by end 2026.”
The rupee closed at 94.1050 against the U.S. dollar, down 0.3% on the day, while the broader equity benchmark Nifty 50 declined 0.8% on Thursday.
Rates
India’s overnight index swaps witnessed aggressive paying bets as traders weighed economic risks of rising oil prices.
The one-year OIS rate rose 7 bps to 5.8950%, while the two-year swap rate climbed 7.5 bps to 6.11%. The liquid five-year OIS rate jumped over 7.25 bps to 6.49%.
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