India bonds end tad higher on softer oil

Indian government bonds marginally increased on Tuesday, supported by lower oil prices, though gains were tempered by caution heading into US midterm elections and profit-taking. Brent crude prices plunged over 7% on Monday, falling to $104.80 a barrel following renewed hopes of a peace agreement between Iran and Qatar. The price recovered to around $106 on Tuesday after reports that the United States had struck Iran’s Qeshm Island.

As India is the world's third-largest oil importer, volatile crude prices can lead to inflation, a weaker rupee, and uncertainty in the fiscal outlook. The 2036 bond yield, a benchmark for the 6.94% issuance, fell by 1 basis point to 7.3012%, the lowest since October 9, after a 10-basis-point decline in the previous day. The yield momentarily sank to 7.2780% before profit-taking erased gains.

Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank, noted that breaching the 7.25% level on the 10-year yield could push it down to 7.15%. The US midterm elections are under scrutiny, as the results could affect the US-Iran conflict and crude oil trajectory. Overnight indexed swap rates in India also decreased as softer oil prices revived demand for receiving interest.

The one-year OIS rate fell by 3 basis points to 6.63%, the two-year dropped 3.75 basis points to 6.64%, and the five-year decreased by 5 basis points to 6.7275%.