Indian bond yields may climb on oil spike and fresh government debt supply

what happened

Indian government bonds may keep losing ground, according to Reuters, as Brent approaches $115 a barrel and raises fears about inflation. Crude rose above $114, its highest in five months, after Yemen's Houthis attacked targets in Saudi Arabia.

Fresh supply adds pressure. New Delhi will raise 330 billion rupees ($3.48 billion) by selling 5-year and 15-year bonds. Lower US Treasury yields, with the 10-year below 5% after weak data, may soften the blow, but a trader at a primary dealership expects the drag from expensive oil to outweigh that effect.

India imports nearly 90% of its oil, so sustained high prices threaten inflation, the rupee and government finances. The Reserve Bank of India recently raised its repo rate and shifted to a tighter stance, and overnight index swaps price in a little over 100 basis points of hikes over the next 12 months.

why it matters

For markets, this points to rising yields in India's domestic debt market and pressure on the rupee. Investors will watch the auction results and oil prices, which drive inflation and rate expectations.

market impact

Indian bonds and OIS rates: pressure from higher oil and inflation; rupee under strain

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