Indian Bonds Seen Rallying Further as Oil Slides

what happened

Reuters reports that Indian sovereign bonds could build on their recent rally in early trading on Tuesday. The drivers are a steep drop in crude prices and softer yields on US Treasuries, though investors remain wary of the US midterm elections.

Oil dropped more than 7% on Monday after talks between Iranian and Qatari officials raised hopes of an end to the US-Iran conflict and steadier Middle East supply. Brent closed below $105 a barrel. President Trump said Washington would not carry out new strikes on Iran before the vote, but did not rule out military action afterward.

A private bank trader quoted by Reuters expects the benchmark 6.94% 2036 bond, which closed Monday at 7.3154%, to trade between 7.28% and 7.33%. The 10-year yield has fallen about 12 basis points over the last three sessions. Overnight indexed swap rates also dropped on Monday: the one-year to 6.6575%, the two-year to 6.6750%, and the five-year to 6.7750%.

why it matters

Falling oil eases inflation concerns, which supports bond prices and pulls yields lower. The rally could reverse if the US-Iran conflict flares up again after the November 3 vote.

market impact

Indian bonds: falling oil and softer US yields support prices and push yields lower

• ▲Indian government bonds pressure up — lower oil eases inflation worries and pulls yields down
• ▼Brent pressure down — hopes for an end to the US-Iran war ease supply concerns

tags

instruments