Indian government bonds see a decline today: What's the reason?
What's the story
Indian government bonds fell in early trade today, mirroring a selloff in US Treasuries. The decline comes as rising tensions between the US and Iran have pushed oil prices higher, raising inflation concerns for India. The benchmark 6.94% 2036 bond yield stood at 6.7340% as of 11:25am IST today. It had eased nearly four basis points to 6.7139% on Friday, marking its best session in a week.
Geopolitical tensions
US-Iran tensions escalate, impacting global markets
Over the weekend, US and Iranian forces were involved in heavy exchanges. Tehran targeted US facilities in Gulf states and claimed to have closed the strategic Strait of Hormuz again. However, the US maintained that traffic was still flowing through this vital waterway. These developments have further fueled inflation concerns for India, which is the world's third-largest oil importer and consumer.
Inflation forecast
Expected rise in India's inflation rate
A Reuters poll of economists has predicted that June's inflation rate is likely to rise to 4.3% from May's 3.93%. This would be the first time in 16 months that it breaches the central bank's medium-term target of 4%. The data is expected later today, further highlighting the impact of global events on India's economy and bond market.
Rate increase
Overnight index swap rates spike
India's overnight index swap rates also saw a spike in early trade, tracking offshore paying. On Friday, the one-year rate was up five basis points at 5.82%, while the two-year rate rose 4.75 basis points to 5.9650%. The most liquid five-year swap rate jumped by 4.5 basis points to 6.2125%, further highlighting the impact of global market trends on India's financial landscape.