INDIA BONDS-India bonds extend losses as higher US yields, debt supply weigh

By Dharamraj Dhutia

MUMBAI, March 24 (Reuters) - Indian government bonds extended losses on Tuesday, largely defying a pullback in oil prices, as elevated U.S. Treasury yields and a large state debt sale weighed on sentiment.

The benchmark 6.48% 2035 yield IN064835G=CC was at 6.8416% as of 10:30 a.m. IST, after ending at 6.8379% on Monday - its highest level since January 2025. Bond yields move inversely to prices.

The yield jumped 10 basis points on Monday, its biggest single-session spike since October 2023, triggered by elevated oil prices and rising Treasury yields amid the Middle East war.

Meanwhile, Indian states aim to raise 574 billion rupees ($6.1 billion) through bond sales on Tuesday, nearly 100 billion rupees more than scheduled and the highest quantum for this financial year.

If successful, it would push state debt issuance to a record for the current quarter and fiscal year.

"Fundamentally, there is no change in positioning so far, and even the rupee is giving up morning gains. Investor demand and cutoff at the state debt sale remain crucial to see whether yields hit fresh highs," a trader with a primary dealership said.

The 10-year Treasury yield was around 4.38%, slightly off its recent highs, but poised to touch fresh highs, investors said, as they await clarity on an end to the war.

Brent crude eased to around $104 per barrel on Tuesday as Iran denied it held talks with the U.S. to end the war, contradicting President Trump, who said a deal could be reached soon.

The conflict has kept oil prices elevated amid supply disruptions. Higher prices are negative for India, the world's third-largest crude importer, as they threaten to worsen inflation and widen the current account deficit.

RATES

India's longer duration overnight index swap witnessed paying, while shorter duration swaps held on to their previous levels.

The one-year OIS rate INR1YMIBROIS=CC was at 5.99%, while the two-year OIS rate INR2YMIBROIS=CC was at 6.18%. The five-year swap rate INR5YMIBROIS=CC moved 5 bps higher to 6.54%.

($1 = 93.80 Indian rupees)