Indian bonds fall 5 bps on raging conflict in the Middle East

Reserve Bank of India

Indian bonds fell nearly 5 basis points (bps) on March 4, as the conflict in the Middle East escalated over the last three days, sending Brent crude prices spiking to more than $80 per barrel.

The benchmark 10-year bond yield rose to 6.7238 percent, as compared to 6.6753 percent. The currency and fixed income markets were closed on March 3 due to a public holiday. Bond prices and yields move inversely.

The last few days have seen Brent crude prices spike to as much as $85 per barrel as military tensions between the United States, Israel, and Iran have escalated. On Saturday, the United States and Israel launched a joint military operation against Iran. During the strikes, Iranian Supreme Leader Ayatollah Ali Khamenei was killed.

Iran retaliated with missile and drone strikes, targeting bases in the US and Israel. In the ongoing conflict, the Strait of Hormuz has been shut down. Nearly 40% of India’s energy imports arise from that particular route.

Higher Brent crude prices have a likelihood of stoking inflationary pressures, which could weigh on domestic bond yields.

“Yields have been hovering near 6.7% in February, reflecting both market positioning and expectations of continued borrowing supply,” analysts from Finrex Treasury Advisors said.

Traders will also look forward to the Rs 29,000 crore debt auction of two of its dated securities on Friday, for any further cues on the bond yield.