India bonds end three-day losing streak but post second straight weekly decline

MUMBAI: Indian government bonds snapped a three-day losing streak on Friday but posted a second straight weekly decline as surging oil prices and higher U.S. Treasury yields kept pressure on sentiment.

The benchmark 6.94% 2036 bond yield ended at 6.8253%, after closing at 6.8413% on Thursday. It rose to 6.8652% earlier in the session, its highest level in five weeks.

For the week, the yield rose four basis points, after rising seven bps last week.

Oil prices climbed for most of the week as the conflict between the United States and Iran fuelled fears of supply disruptions, pushing Brent crude briefly above $100 a barrel for the first time in two months.

Brent eased on Friday but was still on track for a gain of more than 10% this week, after rising 16% and 5.4% over the previous two weeks.

The rally has reignited concerns that inflation could prove more persistent in both India and the United States.

The 10-year U.S. Treasury yield hit 4.70%, its highest level since January 2025, as investors frontloaded bets on a rate hike from the Federal Reserve.

The odds of a rate hike by the Fed is July rose to 30% from 13% last week, and for such an action in September stand at 80%, up from 58%.

The silver lining for bond market came from continued purchases from foreign investors, even though at a slower pace.

Robust demand for bonds continued, while demand across the curve shifted towards the short end in July, with nearly 47% of total foreign purchases seen in bonds with up to five-year maturity, Soumya Mohanty, an analyst for APAC Rates Strategy with HSBC said.

Rates

India’s overnight index swap (OIS) rates jumped for the second week in line with the reaction seen in bond yields.

The one-year swap rate ended at 5.98%, and the two-year rate ended at 6.19%. The most liquid five-year rate jumped 11 bps to settle at 6.49%, after jumping 21 bps last week.