Indian bonds fall 7 bps on crude worries, traders await RBI action

Reserve Bank of India

Indian bonds tanked 7 basis points on March 23, as oil prices remained elevated due to the war in West Asia, which stoked fears of higher inflationary pressures, while traders awaited action from the Reserve Bank of India (RBI) to infuse liquidity in the system.

The benchmark 10-year bond yield was trading at 6.8027 percent, as compared to 6.7369 percent. Bond prices and yields move inversely.

The war in West Asia has escalated in the third week, with Iran saying that it would strike the energy and water systems of its Gulf neighbours if U.S. President Donald Trump followed through with a threat to hit Iran's electricity grid in 48 hours.

Brent crude prices were trading at $112 per barrel, and have risen about 50 percent ever since the war broke out in late February. Higher oil prices are detrimental to India as inflationary pressures could result in higher bond yields.

Domestically, state governments are set to raise Rs 57,408 crore via a debt sale on Tuesday. This is above the Rs 1 lakh crore that the central bank aims to infuse into the liquidity system through an overnight Variable Rate Repo (VRR) auction later in the day.

The RBI had already conducted 2 such VRR operations last week.