India bonds decline as debt supply caution overpowers oil moves

Mumbai saw a decline in Indian government bonds on Thursday, as caution ahead of substantial debt issuance overshadowed the effect of falling oil prices. The benchmark 6.94% 2036 bond's yield rose to 6.8619% by 10:30 a.m. IST, after closing at 6.8488% on Tuesday.

With Indian fixed income markets closed on Wednesday, the government plans to issue 340 billion rupees ($3.56 billion) through the sale of the benchmark paper on Friday, raising its outstanding debt to 1.80 trillion rupees. Traders noted that concerns over the auction's outcome were having a more significant impact than the decline in oil prices.

Earlier this week, the minutes of the Reserve Bank of India's August monetary policy revealed policymakers' openness to raising interest rates if inflation risks materialized and spread. The central bank's next decision is due on October 7, with only one inflation print before then. Retail inflation reached 4.45% for July.

Meanwhile, benchmark Brent crude oil prices dipped for the fourth consecutive day to approximately $87.4 per barrel in Asian hours on Thursday, marking a nearly 7.5% decline over the period. This drop was due to expectations that talks between Iran and Qatar might reopen the strategic Strait of Hormuz, which traditionally facilitated a fifth of global oil and natural gas shipments before the US-Israeli conflict with Iran began on February 28.

Since Iran subsequently closed the waterway in response, oil flows have dwindled to around one-quarter of their pre-war levels, as per ship-tracking data. Easing oil prices would prove beneficial to India, an energy importer, as it could help alleviate inflation pressures and ease the strain on government finances.