MUMBAI: Indian government bonds weakened on Wednesday, with the 10-year yield jumping the most in about two weeks, as doubts over an indefinitely extended U.S.-Iran ceasefire pushed oil prices higher and weighed on India’s macro outlook.
U.S. President Donald Trump called off attacks on Iran indefinitely, but the Strait of Hormuz remained blocked on Wednesday, and neither side showed up for peace talks in Pakistan.
Brent crude hovered near $100 a barrel, battering the rupee, bonds and stocks, underscoring India’s vulnerability as it imports nearly 90% of its oil needs, constituting a fourth of its total import bill.
India’s benchmark 6.48% 2035 bond yield rose over 3 bps to 6.9225%, snapping a two-day winning streak and posting its biggest jump in two weeks. It shut at 6.8894% on Tuesday.
READ MORE: India bonds tick up tracking oil, market focus on US-Iran talks
Yields move inversely to prices.
“The 10-year yield may head toward 6.95%-7% again this week,” a private bank trader said.
The rupee closed at 93.7950, down 0.3% from the previous close and hovering near its weakest level in three weeks. The benchmark Nifty 50 fell 0.81% to 24,378.10.
“In response to the US-Iran conflict, we think New Delhi will introduce policies to redirect critical inputs to key industries, restrain business costs and improve financial support for firms,” BMI, a Fitch company, said in a note.
“We maintain our forecast that the central government will register a fiscal deficit worth 4.5% of gross domestic product in FY2026-27.”
New Delhi had budgeted a fiscal deficit of 4.3% of GDP.
Rates
India’s overnight index swap rates surged tracking higher oil prices and bond yields.
The one-year OIS rate was up 4.25 bps at 5.8275%, while the two-year swap rate rose 5.5 bps to 6.04%. The liquid five-year OIS rate was higher by 7.25 bps at 6.43%.