Oil slide anchors India 10-year yield at 3-month low

MUMBAI: Indian government bond yields edged lower on Tuesday, with the 10-year yield settling at a three-month low, as oil prices cooled further.

Market anxiety connected to the U.S.-Iran war receded as peace talks progressed and Brent crude futures consolidated at $77.8 per barrel, after easing more than 3% in the previous session.

The yield on the benchmark 6.94% 2036 note closed at 6.8364%, versus 6.8473% on Monday.

“Bonds are likely to trade in a tight 6.82%-6.86% range during the holiday-shortened week,” a private-bank trader said. Indian markets are shut on Friday for a local holiday.

Bloomberg Index Services is expected to decide this month whether to include Indian bonds in its Global Aggregate Index. Inclusion would complement the Reserve Bank of India’s recent efforts to attract foreign inflows and bolster the rupee.

Canada’s Fairfax buys nearly $1 billion of Indian bonds in rare move, sources say

The Indian rupee is still down over 4% versus the dollar since the U.S.-Israeli war with Iran began, after recovering about 1% since the RBI unveiled its measures to draw inflows. Foreign investors have bought nearly 224 billion rupees of bonds in June.

More inflows are expected this week, with Indian lenders set to price $1.5 billion in bond issues, including Power Finance Corp’s $300 million five-year dollar bond priced earlier in the day.

Also looming are El Niño risks, clouding India’s inflation and growth outlook.

“Monsoon rains have languished after a slow start, with rainfall deficit widening to 42% as of June 21,” economists at Barclays wrote in a note.

Rates

India’s overnight index swap rates extended their slide as overseas investors unwound paying bets.

The one-year rate fell 2 bps to 5.8450%, while the two-year rate eased 2.75 bps to 5.9950%. The five-year rate was down 5.25 bps at 6.2575%.