India bonds may edge up as oil remains steady despite US sanctions on Iran

MUMBAI: Indian government bonds were likely to edge higher in early deals on Tuesday after a sharp decline in the previous session, as oil prices remained steady despite harsher US secondary sanctions on Iran.

The yield on the benchmark 6.94% 2036 bond is expected to trade between 6.84% and 6.87%, a trader at a private bank said.

It closed at 6.8708% on Monday.

“There could be some recovery in bonds, as oil has not moved higher after the sanctions, but broadly, the benchmark yield should cling to the 6.85% handle,” the trader said.

US Treasury Secretary Scott Bessent on Monday unveiled an expansion of sanctions to cut off Iran’s economic lifeline, to force an end to the near six-month war, telling countries they would need to sever their business ties with Tehran or risk being cut out of the dollar-based financial system.

However, he declined to identify the countries that would be targeted.

Analysts said, since the United States is focusing on economic aspects, any immediate threat to oil supplies from the Middle East is highly unlikely.

Benchmark Brent crude held around $92 a barrel.

Elevated prices weigh on major energy importers such as India, where higher oil prices could fuel inflation and strain the current account and government finances.

Last week, minutes of the Reserve Bank of India’s August monetary policy showed policymakers were open to raising rates if inflation risks materialise and broaden.

Governor Sanjay Malhotra said evidence of such spillovers could warrant “policy tightening”, while Deputy Governor Poonam Gupta said a case for a hike may emerge this year.

Traders also braced for fresh supply of the benchmark bond, due on Friday.

The Indian debt market is shut on Wednesday for a local holiday.