MUMBAI: Indian government bonds recovered sharply on Tuesday, with the benchmark yield falling the most in nearly five weeks, as a steep fall in oil prices buoyed sentiment, even as continued rhetoric over the Iran war clouded the fate of energy supplies.
Oil prices whipsawed this week. The Brent crude surged as high as nearly 29% intraday to $119 a barrel on Monday before tumbling to $88.05 early on Tuesday. It was last trading at $91.87.
The decline followed U.S. President Donald Trump’s remarks that the war could “end soon,” prompting investors to add debt at cheaper levels.
The benchmark 6.48% 2035 bond yield closed at 6.6737%, versus 6.7184% on Monday, marking its biggest fall since February 5.
Bond yields move inversely to prices.
Falling oil prices, along with likely dollar-selling intervention from the Reserve Bank of India, shored up the rupee’s recovery, with the currency ending 0.57% higher on Tuesday.
READ MORE: India bonds likely to open lower as oil surge fuels inflation concerns
The focus now turns to the Reserve Bank of India’s open market operations. The central bank bought 500 billion rupees of securities through OMOs on Monday and has scheduled a similar purchase for Friday, ahead of seasonal advance-tax payments and other tax outflows in the coming weeks.
“The market (is) hoping the 10-year benchmark is included and that the RBI continues to buy at better-than-market levels,” said Debendra Kumar Dash, senior vice president of treasury at AU Small Finance Bank. “Another 500 billion rupees of OMOs also remains a possibility.”
Rates
India’s overnight index swaps broke a five-day paying streak, with traders receiving heavily after oil prices eased.
The one-year OIS, two-year rate and the five-year rate were each eased 11-12 bps to end down at 5.7150%, 6.9050% and 6.28% respectively.
American Dollar Exchange Rate