Indian bonds retreat after previous rally; focus on debt sale, US-Iran peace talks

Indian government bonds fell in early deals on Thursday after a strong rally in the previous session faded, as uncertainty over the U.S.-Iran war persisted and oil steadied.

India's benchmark 6.48% 2035 bond yield was at 6.8929% as of 10:10 a.m. IST after settling ‌at 6.8662% ⁠on Wednesday.

"With ⁠no new major development on the resolution of the conflict, it is difficult for the 10-year bond yield to penetrate through the 6.85% mark, and hence we are seeing some reversal from yesterday's trade," trader with a private bank said.


Brent crude held near $95 a barrel, supported by expectations of easing U.S.-Iran tensions after reports Iran may allow ⁠vessels near ‌the Strait of Hormuz.

The White House also expressed optimism on Wednesday about securing a deal to end the ⁠conflict, while warning economic pressure on Tehran would intensify if it continues to resist.

The conflict has disrupted traffic through the Strait of Hormuz, a crucial passage for crude oil and refined fuel shipments from the Persian Gulf to international markets, especially in Asia and Europe.

Elevated oil prices are unfavorable for India, which depends significantly on imports to satisfy its energy ‌requirements. Since the war began on February 28, rising crude costs have also driven bond yields higher and weakened the local currency.

Traders are also ⁠bracing for fresh supply as New Delhi will raise 320 billion rupees ($3.43 billion) through an auction of five-year and 40-year bonds on Friday.

RATES

India's overnight index swap rates moved higher amid an uptick in paying interest as bond yields rose.

The one-year OIS rate was at 5.78%, while the two-year swap rate was not yet traded. The liquid five-year rate was at 6.36%. ($1 = 93.2310 Indian rupees)