INDIA BONDS-India bonds under fire as oil, US yields compound supply woes

By Dharamraj Dhutia

MUMBAI, March 23 (Reuters) - Indian government bonds plummeted on Monday, as surging oil prices and rising U.S. Treasury yields weighed on sentiment.

The benchmark 6.48% 2035 bond yield was at 6.8261% as of 10:30 a.m. IST, up 9 basis points, and after closing at 6.7369% on Friday. Bond yields move inversely to prices.

The market is already grappling with heavy debt supply and uncertainty over the central bank's continued support.

Indian rupee plunged to a fresh record low of 93.94 against the dollar amid pressure from oil and U.S. yields.

The benchmark Brent crude hovered near $113 a barrel after Tehran said it would target its Gulf neighbour's energy and water infrastructure if U.S. President Donald Trump follows through on threats to strike Iran's electricity grid, intensifying the conflict in the Middle East, now in its fourth week.

Higher oil prices pose a particular risk for India, the world's third-largest crude importer, as they could heighten domestic inflation and widen the current account deficit, adding to the pressures already facing the bond market.

U.S. Treasury yields rose on inflation concerns.

The 10-year Treasury yield was above 4.40% for the first time in nearly eight months, while the two-year yield, which is more sensitive to interest-rate expectations, climbed to 3.93%.

Back home, Indian states aim to raise 574 billion rupees ($6.11 billion) through the sale of bonds on Tuesday, with the quantum nearly 100 billion rupees more than scheduled. It will push issuance to a record for the quarter and the financial year.

RATES

India's overnight index swap (OIS) rates soared with activity dominated by payers tracking negative factors for rates.

The one-year OIS rate INR1YMIBROIS=CC was at 5.95% and the two-year OIS rate INR2YMIBROIS=CC was at 6.18%. The five-year swap rate INR5YMIBROIS=CC jumped 10 bps to 6.52%.

($1 = 93.9000 Indian rupees)