India bonds end steady; Iran peace proposal in focus

NEW DELHI: Indian government bonds ended steady on Thursday, after a sharp rally in the previous session, as oil prices swayed to hopes about a potential U.S.-Iran deal to end the two-month-long war.

The U.S. and Iran are edging toward a limited, temporary agreement to halt their war, sources and officials said on Thursday, with a draft framework that would stop the fighting but leave some contentious issues unresolved.

Oil prices extended losses, sliding around 2% to below $100 a barrel in volatile trade.

The closure of the Strait of Hormuz, which typically carries a fifth of global oil supplies, has caused major disruptions worldwide.

Analysts expect supplies to tighten further in the coming weeks even if a peace deal is reached, as it will take time for shipments from the Gulf to resume and reach refiners globally.

A sustained rise in crude prices could fuel inflation in India, pressure the rupee, worsen the current-account balance and complicate the government’s fiscal arithmetic.

“After a long time, markets finally had some positive news to react to, but the underlying mood remains nervous over inflation, fiscal pressures and heavy state borrowing,” Kruti Chheta, Mumbai-based fund manager and fixed income analyst at Mirae Asset Investment Managers (India), said.

India’s benchmark 6.48% 2035 bond yield ended at 6.9328% versus 6.9219% on Wednesday, when it fell 10 basis points.

Bond traders awaited the auction of a new 10-year bond a day later.

Rates

India’s overnight index swap rates were mixed as the market awaited cues on the peace deal.

One-year swap rate down 1.75 bps at 5.87%, while two-year swap rate was up 2.25 bps at 6.09%. Most liquid five-year OIS rate rose 2 bps to 6.5050%.