Indian Government Bonds Trade Flat as Oil Price Surge Offsets Falling US Treasury Yields

MUMBAI — Indian government bonds held steady in early deals on Friday. Investors balanced a notable surge in global oil prices against plunging US Treasury yields, while fresh supply kept overall demand tepid in the market.

Brent crude prices moved sharply higher, rising above $114 per barrel to reach a five-month high. The increase followed Houthi attacks on Saudi Arabia, which heightened market concerns regarding potential disruptions to global energy supplies.

India remains substantially exposed to sustained increases in crude prices because the country imports close to 90% of its oil requirements. Higher energy costs typically widen the national import bill, negatively impact the currency and inflation outlook, and weaken public finances.

In contrast, US Treasuries rallied during the session. The 10-year yield fell below 5% following softer economic data and an equity-market selloff. The US market reaction was linked to growing fears that spending on artificial intelligence may not translate into near-term earnings growth as quickly as investors previously expected.

A trader with a state-run bank noted that the move in crude is being driven as much by geopolitical risk premiums as by immediate supply losses. Meanwhile, softer US yields suggest that investors are increasingly worried that higher energy costs could weigh on broader global growth.

In domestic pricing, India's benchmark 6.94% 2036 bond yield stood at 7.4778% as of 10:00 a.m. IST, compared to its previous closing of 7.4596%. Bond yields move inversely to their prices.

Later in the day, New Delhi is scheduled to raise 330 billion rupees, equivalent to approximately $3.48 billion, through the sale of government bonds.

These global and domestic headwinds unfold against a backdrop of monetary tightening. Earlier this month, India's central bank raised the benchmark repo rate and shifted its policy stance to a "calibrated tightening" framework, signaling readiness to implement further policy measures if price pressures become more entrenched.

Meanwhile, India's overnight indexed swap rates remained broadly steady. The 1-year OIS rate was recorded at 6.57%, the 2-year rate traded at 6.63%, and the liquid 5-year rate stood at 6.82%.

"The current macroeconomic environment presents a delicate balancing act for the Indian economy. With crude oil prices crossing $114 per barrel and India importing nearly 90% of its oil, inflationary pressures and import bills are key areas to monitor. For businesses and startups operating in capital-intensive sectors, navigating these shifts requires prudent financial planning, as central bank tightening and volatile bond yields could influence overall liquidity and borrowing costs in the near term." — Dr. Shishir Gupta, Founder & CEO, StartupLanes