Indian government bonds slipped for a second straight day as higher oil prices and the Reserve Bank of India’s early withdrawal of a key liquidity scheme weighed on investor sentiment, reversing recent gains after a policy shift.
Indian government bonds fell for a second straight session on Tuesday, giving back part of the gains they had made after the Reserve Bank of India’s policy shift earlier this month. The Business Recorder report said the benchmark 6.94% 2036 bond ended at 6.8269%, up from 6.8071% on Monday, as higher oil prices and the early closure of a dollar swap window weighed on sentiment.
The 10-year yield had slipped to about 6.76% after the central bank’s more dovish stance on August 5, when it kept the policy repo rate unchanged at 6.50% and left other key rates steady. But the RBI later said it would shut its zero-cost swap facility a month ahead of schedule after inflows into the scheme topped $50 billion, easing one source of support for the bond market. Dealers and analysts said the move removed an important liquidity backstop, especially after banks had been encouraged to use the facility to hedge foreign-currency deposits from non-resident Indians.
Oil was the other main pressure point. Brent crude briefly approached $92 a barrel after the 60-day US-Iran ceasefire ended without signs of renewal, a development that matters for India, the world’s third-largest oil importer. Higher crude prices tend to worsen inflation, current-account balances and public finances, making investors more cautious on sovereign debt. Overnight index swap rates also rose for a second day, with the one-year rate at 5.83%, the two-year at 6.0550% and the liquid five-year rate at 6.42%, suggesting traders see less short-term relief for borrowing costs. Earlier this year, tighter liquidity conditions and sticky inflation had already pushed Indian bond yields higher, underscoring how quickly sentiment can turn when policy support fades.
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