INDIA BONDS-India bonds log biggest selloff in 2-1/2 years on higher oil, US yields

Updates at market close

By Dharamraj Dhutia

MUMBAI, March 23 (Reuters) - Indian government bonds plunged on Monday, as elevated oil prices and rising U.S. Treasury yields triggered the sharpest selloff since October 2023, although bonds recouped half of their losses after positive commentary from U.S. President Trump on Iran war.

The benchmark 6.48% 2035 bond yield ended at 6.8379%, 10 bps higher than its close on Friday, in the biggest single-session spike in since October 2023. The yield ended at its highest level since January 2025.

Bond yields move inversely to prices.

Amid geopolitical uncertainty, the rupee could weaken further towards 95 per dollar and pressure local bonds, keeping the 10-year yield afloat around 6.80% or higher, Nuvama said in a note.

"Meanwhile, the Reserve Bank of India may have braced itself for a change in rate action, eventually reducing its support through OMO purchases," it added.

The benchmark Brent crude dropped to around $102 per barrel after Trump said, he had very good and productive conversations regarding a complete and total resolution of hostilities in Middle East.

Oil hovered around $113 a barrel earlier after Iran's Revolutionary Guards said they would target Israel's power plants and those supplying U.S. bases in the Middle East in retaliation against any attack on its electricity sector.

On Saturday, Trump threatened to "obliterate" Iran's power plants if it did not fully reopen the Strait of Hormuz within 48 hours, further escalating the war, which is in its fourth week.

For India, the world's third-largest crude importer, higher oil prices could push up inflation and widen the current account deficit, adding more pressure on the bond market.

U.S. Treasury yields also jumped due to inflation concerns, stemming from a prolonged period of elevated oil prices.

RATES

Overnight index swap $(OIS)$ rates climbed, with key rates rising about 10 bps, tracking higher oil prices and U.S. yields.

The one-year OIS rate INR1YMIBROIS=CC ended at 5.97%, while the two-year OIS rate INR2YMIBROIS=CC closed at 6.17%.

The five-year swap rate INR5YMIBROIS=CC settled at 6.52%.

($1 = 93.9000 Indian rupees)

(Reporting by Dharamraj Dhutia; Editing by Harikrishnan Nair and Eileen Soreng)

((Dharamraj.dhutia@tr.com))