MUMBAI: India’s benchmark 10-year bond yield snapped a six-session decline on Friday, as a halt in U.S.-Iran peace talks slowed oil’s retreat and curbed risk appetite, while some investors locked in gains after a recent rally in prices.
Brent crude inched higher in Asian trade, briefly rising past $80 a barrel, after a Swiss foreign ministry statement said U.S. talks with Iranian negotiators were scrapped, as Vice President JD Vance dropped plans to travel there, fuelling uncertainty over a lasting truce.
Brent was last at $79.48 per barrel, down 9% for the week.
India imports nearly 90% of its crude oil requirement, and a sustained fall could ease inflationary pressure and support the rupee, aiding the central bank’s efforts to attract dollar inflows.
Tracking the sharp fall in oil prices, the benchmark 6.94% 2036 bond yield slipped 4.2 basis points this week, its fourth straight weekly decline.
It ended at 6.8533% on Friday, up 1.5 basis points from the previous close, on profit-booking and doubts over the durability of the U.S.-Iran deal, traders said.
“We are seeing some profit booking after a good rally,” said Alok Singh, head of treasury at CSB Bank, adding that bonds should consolidate in a 6.82%-6.89% range.
The next factor to watch is El Nino and its impact on inflation, Singh said.
The IMD has forecast rainfall over India at 90% of the Long Period Average (LPA), indicating a below-normal monsoon, which could affect the country’s inflation and growth.
Rates
India’s overnight index swap rates rose on Friday as caution around the U.S.-Iran truce kept traders on edge.
The one-year swap rate was up 1.25 bps at 5.9%, and the two-year rate rose 1.75 bps to 6.06%. The five-year rate was at 6.34%, higher by 2 bps.
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