India bonds likely to rise on lower oil, but debt supply tempers optimism

MUMBAI: Indian government bonds are likely to rise in early deals on Friday, tracking a decline in oil prices, although any major gains seem unlikely until the weekly debt auction.

The benchmark 6.48% 2035 note is expected to trade in the 6.96% to 7.02% range, a private bank trader said.

It had ended at 6.9960% on Wednesday. Indian markets were closed on Thursday for a holiday.

Bond prices move inversely to yields.

New Delhi will raise 280 billion rupees ($2.93 billion) through sale of bonds later in the day.

“There could be some movement towards the better side of 7% today, but it will again boil down to demand at auction, which will be a major factor to track,” the trader said.

Oil prices fell on hopes for a potential deal to extend the US-Iran ceasefire, although remarks from Vice President JD Vance that the countries were “close” to reaching a deal but “not there yet” kept a floor under prices.

Brent crude prices have fallen 10% this week to around $93 per barrel, but have remained volatile in recent sessions on conflicting signals over a potential re-opening of the Strait of Hormuz - a key transit route that handles roughly a fifth of the world’s oil and liquefied natural gas supplies.

Elevated oil prices impact India’s inflation and current account deficit and the government’s fiscal maths, while adding pressure on the central bank to hike interest rates.

Focus is now on the Reserve Bank of India’s policy decision next week, with four foreign lenders - Standard Chartered, ANZ, MUFG and OCBC - expecting a rate hike.

The caution was reflected in Wednesday’s treasury bill sale, where 364-day yield topped 6% for first time in nearly 14 months.