MUMBAI: India’s benchmark 10-year government bond yield spiked on Friday, driven by mounting concerns about a potential military confrontation between the U.S. and Iran that has bid crude oil prices up to their highest in six months.
Higher crude oil prices are a key risk for India, a net energy-importer.
The benchmark 6.48% 2035 bond yield settled at 6.7214% on Friday, rising more than 4 basis points, its biggest jump in two weeks. Bond yields move inversely to prices.
U.S. President Donald Trump issued fresh warnings on Thursday urging Iran to strike a deal on its nuclear programme, setting a 10-15 day deadline, which prompted Tehran to threaten retaliation against U.S. bases in the region if attacked.
Benchmark Brent Crude futures hit nearly $72 a barrel on Friday, their highest since July 31.
With global tensions simmering, the market saw some position unwinding ahead of the weekend, said Alok Singh, head of treasury at CSB Bank. “If there’s no further escalation, crude could ease and yields may retrace.”
Aggressive paying in overnight index swaps due to weakness in the rupee and rising crude prices also dampened sentiment in the debt market, traders said.
Separately, New Delhi raised 330 billion rupees ($3.62 billion) through the sale of government bonds earlier in the day, at yields 2-3 basis points above market levels deepening the selloff, and sending the 10-year yield to the day’s high of 6.7341%.
Rates
India’s 5-year OIS rate logged its biggest jump in 2 weeks on a risk-off move driven by U.S.-Iran tensions.
The one-year OIS rate rose 2.25 bps to 5.5225%, while the two-year rate rose about 3 bps to 5.65%. The five-year OIS rate jumped nearly 5.5 bps to 6.0950%.
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