Indian bonds flattish as oil spike offset by falling Treasury yields

Mumbai saw Indian government bonds remain largely unchanged in early trading on Friday as investors grappled with the impact of rising oil prices and falling US Treasury yields, despite a surge in supply. The price of Brent crude oil surged above $114 per barrel, marking its highest level in five months, following Houthi attacks on Saudi Arabia and concerns over the potential for further disruptions to global energy supplies.

India heavily relies on oil imports, covering nearly 90% of its needs, which means that higher oil costs can strain the country's import bill, currency, and inflation outlook, as well as undermine public finances.

Meanwhile, US Treasuries experienced a rally, with the 10-year yield dipping below 5%, following weaker economic data and a market sell-off of equities due to doubts about the near-term earnings growth from AI spending. A trader from a state-run bank explained that the oil price surge is influenced by both geopolitical risk and the immediate reduction in supply, while the lower US yields indicate that investors are increasingly concerned about potential global growth slowdown from higher energy costs.

On Friday, India's benchmark 6.94% 2036 bond yield stood at 7.4778%, slightly higher than the previous day's close of 7.4596%. The government plans to issue 330 billion rupees ($3.48 billion) through the sale of bonds later in the day. Amid the global challenges, India's central bank raised the benchmark repo rate in the past month and adopted a "calibrated tightening" approach to policy, suggesting a possible further tightening of monetary policy if inflationary pressures persist.