India bonds end higher as oil eases; focus shifts to debt sale, inflation

MUMBAI: Indian government bonds ended higher on Thursday after a choppy session, as lower oil prices offset concerns over renewed escalation in the U.S.-Iran conflict.

The yield on the benchmark 6.94% 2036 bond ended at 6.9240%, compared with Wednesday’s close of 6.9431%. Yields move inversely to prices.

The government and the Reserve Bank of India announced measures to attract foreign inflows, support the rupee and strengthen external balances, helping keep sentiment positive.

The Reserve Bank of India allowed lenders to raise foreign currency deposits from non-resident Indians and agreed to absorb the hedging costs. It also offered state-run companies a 150-basis-point discount on hedging costs to support overseas fundraising.

“These measures will also spur bank deposits, lowering the need to raise market-based borrowings in the near-term. Bonds rallied on the measures and could see further gains especially at the 3-year to belly segment,” said Radhika Rao, senior economist & executive director at DBS Bank.

Bonds dropped at the start of the session after the United States launched new strikes on multiple targets overnight in Iran, with President Donald Trump threatening even more attacks if no peace deal is secured.

Brent crude futures surged to $95.50 per barrel in Asian trade, but eased as the day progressed.

India is increasingly counting the cost of the Iran war, which economists say will keep mounting if the deadlock between the U.S. and Iran remains unresolved and the blockage of oil supplies continues.

New Delhi is set to raise 320 billion rupees through the sale of bonds and also detail May retail inflation data on Friday.

Rates

India’s overnight index swap rates also reversed their rise and ended lower in line with bond yields.

The one-year swap ended at 6.0250%, while the two-year rate closed at 6.1950%, while the more liquid five-year rate closed at 6.43%.