India 10-year bond logs month's worst drop on auction rout, war jitters

NEW DELHI: India’s benchmark government bond fell the most in a month on Friday, as traders cut holdings to absorb new 10-year note supply and avoided taking on risk ahead of the weekend as U.S-Iran clashes continued.

U.S. and Iranian forces continued fighting in the Gulf, but President Donald Trump said a ceasefire was still holding despite the flare-up.

Oil prices held above $100 a barrel in Asian hours, making traders wary of the economic risks of higher crude prices and supply shortage as India imports nearly 90% of its crude needs.

The benchmark 6.48% 2035 bond yield shut at 6.9809% after rising most since April 9, versus Thursday’s close of 6.9328%. It has risen 6 basis points in the last two sessions.

Bond yields move inversely to prices.

“People lightened their positions before the weekend fearing any escalation in the U.S.-Iran war,” said Debendra Kumar Dash, senior vice president of treasury at AU Small Finance Bank. Indian overnight index swap traders were also seen betting on early rate hikes, pricing in about 75 bps of hikes this year, if the war doesn’t come to a halt.

Separately, New Delhi raised 340 billion rupees ($3.60 billion) through a new 10-year bond that is set to replace the current benchmark in the coming weeks. Strong bank demand helped the auction clear at slightly better-than-expected levels, traders said.
Rates

India’s overnight index swap (OIS) rates climbed as traders fretted over higher oil prices and risks of war escalation.

The one-year swap rate was up 2.5 bps at 5.9%, while the two-year swap rate rose 3.75 bps to  6.13%. The most liquid five-year OIS rate was at 6.5635%, higher by 5.75 bps.