Indian bonds buckle under oil spike, fresh debt sale

MUMBAI: Indian government bonds fell early on Friday, giving up part of the week’s gains, as higher oil prices weighed on sentiment ahead of New Delhi’s hefty debt sale.

Higher crude prices also pushed the US 10-year Treasury yield up 7 basis points overnight and in Asian trade to 4.68%, reducing the appeal of riskier emerging market debt.

The benchmark 6.94% 2036 bond yielded 6.7869% at 10:40 a.m. IST, 2 basis points above Thursday’s close. It was still set for its first weekly decline in five weeks.

New Delhi will raise 320 billion rupees ($3.36 billion) through a sale of bonds maturing in five years and 40 years later in the day.

“Appetite for the long-term note will be key to watch at the auction, with US-Iran tensions and soaring oil prices stoking fears of higher global rates,” a private-bank trader said.

Benchmark Brent crude contract was last at $83.71, up over $4, or nearly 6% from $79 per barrel on Tuesday.

India is the world’s third-largest importer and consumer of oil.

Higher crude prices could increase its import bill, push up inflation and weigh on the rupee.

The Reserve Bank of India, however, eased immediate inflation concerns in a more dovish than expected policy announcement on Wednesday.

The RBI kept the repo rate unchanged, but cut its inflation forecast for the year, promising sufficient liquidity for the banking system, prompting some analysts to push back their calls for rate hikes.

The central bank’s rate stance and inflows into its foreign-currency scheme for non-residents continue to support short-end demand, traders said.