Indian bond yields rise as oil prices climb and RBI closes deposit scheme

Indian government bonds experienced a second straight day of decline on Tuesday. The yield on the benchmark 6.94% 2036 bond rose to 6.8269%, up 5 basis points from Monday's 6.8071%, marking its steepest single-day increase in over a month. The 10-year bond yield fell to around 6.76% after the Reserve Bank of India adopted a dovish stance on August 5; however, bond prices have reverted to their prior levels following that policy decision.

On Friday, the RBI announced it would terminate a zero-cost swap facility one month early. The facility, introduced in June, provided banks with a hedge for foreign-currency deposits obtained from non-resident Indians, attracting more than $50 billion in inflows, surpassing projections. Policymakers expressed concern over the facility's impact on domestic liquidity.

Brent crude oil prices surged to nearly $92 per barrel during Asian trading hours, following the expiration of a 60-day U.S.-Iran ceasefire on Monday. Neither Iran nor the U.S. signaled intentions to renew the agreement. India's overnight index swap rates also climbed for the second consecutive day, with the one-year swap rate ending at 5.83%, the two-year rate closing at 6.0550%, and the five-year rate settling at 6.42%. Swap rates had risen between 10 and 17 basis points throughout the week.