India bonds set to extend declines as oil rises more, fresh debt supply looms

MUMBAI: Indian government bonds are set for another session of declines on Friday, as oil prices extend gains, while traders brace for fresh supply from the weekly auction.

India’s benchmark 6.48% 2035 bond yield is expected to drift in a 6.92%-6.98% range, a private-bank trader said. It settled at 6.9498% on Thursday. Bond yields rise when prices fall.

New Delhi will raise 320 billion rupees ($3.40 billion)through sale of bonds later in the day, which includes the liquid 30-year paper.

“This set of auction papers is slightly illiquid as compared to others, so some impact on demand is expected,” the trader said.

“But major focus continues to remain on the direction of oil prices, and traders would look to shed positions before the weekend.”

Oil prices rose further in Asian hours on Friday over fears of renewed military escalation in the Middle East after Iran released footage of commandos boarding a cargo ship in the Strait of Hormuz and on reports that Tehran’s air defences had engaged with “hostile targets”.

U.S. President Donald Trump said that Iran may have loaded up its weaponry “a little bit” during the two-week ceasefire, but added that the U.S. military could eliminate it in just a single day, with markets now feeling the ceasefire phase is increasingly looking like a preparatory phase for war.

Brent crude prices have risen nearly 50% after the U.S.-Iran war started on February 28.

Higher oil prices are detrimental to India, which relies on imports to meet nearly 90% of its crude needs. These imports constitute around a fourth of its total import bill.