Indian government bonds slip in early trades on Wednesday, after a flare-up in Middle East tensions pushed oil prices and Treasury yields above key near-term psychological levels.
The benchmark 6.94% 2036 bond yield was at 6.7246% as of 10:00 a.m. IST, after closing at 6.6958% in the previous session. Bond yields move inversely to prices.
The rise extends an uptick in the 10-year bond yield from Tuesday that ended a run of declines in the three previous sessions.
"Bonds are likely to remain offered for the day, as Brent crude remains above $75 per barrel, which is the only negative in the current scenario," a trader with a primary dealership said.
Oil prices jumped in Asian hours on Wednesday, after the U.S. military launched a series of strikes against Iran, heightening concerns that a fragile truce was already faltering and raising supply worries, as the U.S. also revoked a general license authorising Iranian crude sales.
The 10-year U.S. Treasury yield climbed 7 bps over Monday's close to around 4.55% on Wednesday.
Indian bonds still continue to count on unwavering purchases by foreign investors, providing a strong floor to bond prices. These investors have net bought debt worth 362 billion rupees ($3.81 billion) since the start of June.
Inflows under the Fully Accessible Route have remained strong after policymakers undertook measures to attract foreign capital last month, boosting the prospects of Indian bonds' inclusion in Bloomberg's Global Aggregate Index.
RATES
India's overnight index swap rates started the session with a paying bias, tracking bond yields and oil moves.
The one-year swap rate was at 5.76%. The two-year rate was at 5.91% and the five-year rate was at 6.16%, both up 4 bps each. ($1 = 95.0850 Indian rupees)
