India bonds steady as value buying offsets Iran war flare up

NEW DELHI: Indian government bonds steadied on Tuesday, with the benchmark 10-year snapping a five-session slide, as bargain buying picked up after oil prices showed no further spike despite renewed U.S.-Iran attacks.

India’s benchmark 6.48% 2035 bond yield settled at 7.0184% versus 7.0194% on Monday. Bond yields move inversely to prices.

A fragile truce in the Middle East was under strain after the U.S. and Iran exchanged fire in the Gulf on Monday as they wrestled for control of the Strait of Hormuz.

The vital waterway, which carries a fifth of global energy supplies, has largely remained shut since the U.S. and Israel began attacks on Iran on February 28.

“Oil prices have remained contained despite the crisis, and stable U.S Treasury yields have also offered support to bonds today, leading to some short-covering,” said Debendra Kumar Dash, senior vice president of treasury at AU Small Finance Bank.

Oil steadied during Asian hours after rising 6% on Monday. Benchmark Brent crude was last at $113 a barrel. U.S. Treasury yields also eased, with the 10-year yield down 1 basis point at 4.4322%.

The Indian rupee, however, slid to a record low of 95.4325 on Tuesday, with analysts expecting further weakening as the war drags on.

Separately, New Delhi plans to sell a new 10-year bond worth 340 billion rupees ($3.58 billion) this week, which will likely be issued at a coupon above 7% for the first time in two years, as the risk of higher inflation and macro pressures drive up funding costs, analysts said.

Rates

India’s OIS rates closed mixed as traders paused to assess geopolitical developments.

The one-year OIS rate was up 1 bp at 6.0575%, while the two-year swap rate was down 2 bps at 6.28%. The five-year rate was flat at 6.6725%.