India Bond Yields Rise As 25% Oil Price Surge Triggers Market Selloff

Indian government bond yields climbed on Monday after crude oil prices surged nearly 25% to around $115.92 per barrel amid the continuing conflict in the Middle East, increasing concerns about inflation and currency pressure for India, according to Reuters.

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The yield on the benchmark 6.48% government bond maturing in 2035 rose about 6 basis points to 6.7503% as of 11:40 a.m., compared with the previous close of 6.6898% on Friday. The move placed the bond market on track for its biggest single-day rise in yields since early February, when the government announced a larger-than-expected borrowing plan, Reuters reported.

India is the world’s third-largest crude oil importer, and sharp increases in global oil prices can influence inflation and foreign exchange markets.

Oil Surge Driven By Middle East Conflict

As the US, Israel, and Iran fought for the 10th day, Brent crude futures rose sharply. This made people worry about supply problems in the global energy markets.

According to Reuters, oil tankers have been unable to pass through the Strait of Hormuz, a critical global shipping route for crude oil exports from West Asia. The disruption has contributed to the steep rise in crude prices.

Reports also indicated that Iraq and Kuwait reduced oil production during the conflict. People in the market have also said that the UAE and Saudi Arabia might cut production if they run out of space to store oil.

The big rise in oil prices has made people more worried about countries that import energy, like India, where higher crude costs can affect inflation and the balance of payments.
RBI Bond Purchases Continue

The Reserve Bank of India is scheduled to conduct an open market operation purchase worth ₹50,000 crore later in the day, according to the central bank’s announcement.

The operation includes purchases of several government securities, including the earlier benchmark 6.33% bond maturing in 2035.

According to data published on the Reserve Bank of India’s website, the central bank net purchased government bonds worth ₹9,900 crore in the previous week through secondary market operations.

The open market operations are conducted by the central bank to manage liquidity conditions in the financial system and influence bond yields.

Swap Rates Rise In Derivatives Market

The interest rate derivatives markets also showed a change in bond yields.  The one-year overnight index swap rate increased by about 13.25 basis points to 5.74%, while the two-year OIS rate rose around 18.5 basis points to 5.96%, according to Reuters.

The most actively traded five-year OIS rate gained about 15.5 basis points to 6.37%.

Today's trading session reflects how global energy prices and geopolitical events are affecting India's financial markets, as seen in the shifts in government bond yields and swap rates.