INDIA BONDS-Indian bonds dip as U.S.-Iran tensions push oil up

By Khushi Malhotra

MUMBAI, Feb 20 (Reuters) - India's government bond yields rose on Friday after escalating U.S.-Iran tensions drove oil to a more than six-month high, weighing on risk appetite and keeping traders cautious ahead of the weekly debt auction.

The benchmark 6.48% 2035 bond yield was at 6.7167% at 10:10 a.m. IST, compared with 6.6780% at Wednesday’s close. Bond yields move inversely to prices.

The debt market was shut on Thursday for a local holiday.

Sentiment was already fragile on supply concerns, and the surge in crude added pressure, traders said.

President Donald Trump issued fresh warnings on Thursday urging Iran to strike a deal on its nuclear programme, prompting Tehran to threaten retaliation against U.S. bases in the region if attacked.

Traders said a large U.S. military build-up in the Middle East has heightened fears of a wider conflict, keeping markets on edge.

Benchmark Brent Crude futures rose to $71.94 a barrel on Friday, their highest since July 31, 2025. Higher oil prices are a negative for India, one of the world's largest crude importers.

"Paying in overnight index swaps (OIS) on rising oil prices has lifted risk aversion, and traders may avoid adding duration as tensions could escalate over the weekend," said a trader at a private bank, adding that investors would be wary of taking risk at the weekly auction.

New Delhi is set to raise 330 billion rupees ($3.62 billion) through the sale of government bonds later in the day.

Rates

India's long-term OIS rates rose on a risk-off move driven by higher crude.

The one-year OIS rate rose 2 bps to 5.52%, while the two-year rate rose about 3 bps to 5.6475%. The five-year OIS rate jumped nearly 5 bps to 6.0875%.

($1 = 91.0410 Indian rupees)