India bonds likely to fall as oil spikes with rising Mideast hostilities
- The benchmark 6.94% 2036 bond yield is expected to trade between 6.72% and 6.77%
MUMBAI: Indian government bonds are set to extend losses in early trade on Tuesday, as oil prices jumped after the US reimposed a naval blockade of Iran, with the warring nations stepping up attacks around the Strait of Hormuz.
The benchmark 6.94% 2036 bond yield is expected to trade between 6.72% and 6.77%, a trader at a private bank said, after ending the previous session at 6.7309%.
Bond yields move inversely to prices.
Bond bulls will turn cautious with the situation in the Middle East escalating rapidly, the trader said, adding that a breach of the 6.75% level is likely.
The benchmark Brent crude contract crossed $85 per barrel, the highest since the two countries signed a memorandum of understanding to end the war on June 17.
Two United Arab Emirates tankers were hit by Iranian cruise missiles in Omani territorial waters.
US President Donald Trump said he has reinstated the blockade of Iranian shipping, adding that he wanted the US to be reimbursed for protecting countries that it was helping in the Strait of Hormuz.
Volatility in oil prices impacts India’s inflation as the nation is one of the largest importers of crude.
Retail inflation in June breached the central bank’s target for the first time in 17 months, as the consumer price index rose to 4.38% year-over-year in June, higher than the 4.3% forecast in a Reuters poll, led by higher fuel and food costs.
Still, sentiment remains underpinned by expectations of Indian debt’s inclusion in Bloomberg’s Global Aggregate Index, with foreign investors channelling about $4.1 billion into bonds under the Fully Accessible Route in the last six weeks since June 1.