Indian government bonds were hemmed in a tight range on Wednesday, as support from softer U.S. Treasury yields clashed with surging oil prices. The benchmark 6.94% 2036 bond yielded 6.8170% at 12:30 p.m. IST, versus 6.8269% at Tuesday's close. The yield had risen 7 basis points over the previous two sessions before pausing on Wednesday.
Brent crude futures climbed 0.6% to $91.60 a barrel in Asian trade, extending gains into a fourth day after U.S. President Donald Trump said no talks with Iran were under way and Iran said the Strait of Hormuz remained blocked.
For India, the world's third-largest oil importer, higher crude prices pressure the rupee, the country's economic growth, fiscal metrics and inflation.
Softer U.S. Treasury yields partly cushioned the oil shock. The 10-year yield slipped to 4.69% in Asian trade, back below the closely watched 4.70% mark, lifting domestic sentiment.
Lower U.S. yields typically support demand for comparatively higher-yielding emerging-market debt. Globally, bond selloff slowed even as yields hovered near their highest for decades.
Domestic long-term investors and state-run lenders also contained the rise in Indian yields, traders said.
The "others" investor category, which includes insurers, pension funds, corporates and the central bank, bought bonds for nine straight sessions, favouring longer-dated notes, while state-run banks stepped in as value buyers whenever oil jolted yields higher, traders said.
Investors now await the RBI's August policy minutes later in the day for fresh direction.
"Traders are holding back until crude settles, while some banks are buying around 6.85%-6.82%," a private-bank trader said. "Only participants with steady inflows are deploying funds; speculators are staying out."
RATES
India's overnight indexed swap rates eased, though rupee weakness and higher oil prices limited the move.
The one-year swap fell 1.5 bps to 5.81% and the two-year dropped 1 bp to 6.04%. The liquid five-year rate gave up 3.25 bps to 6.3875%.
