India Bonds Slip Ahead Of Auction On Fuel Hike, US Debt Rout

The central government bonds fell in early trade on Friday, as a domestic fuel price hike rekindled inflation worries and US Treasury yields at one-year highs dented the appeal of emerging-market debt, dampening demand ahead of fresh debt supply.

The yield on the benchmark 6.48% 2035 bond rose to 7.0591% by 11:30 a.m. IST, compared with 7.0203% on Thursday. Bond yields move inversely to prices.

India raised petrol and diesel prices for the first time in four ​years by 3 rupees ($0.03) per litre, or more than 3%, Delhi-based ‌retailers said on Friday, to recoup some of the losses incurred due to higher global crude oil prices.

Crude prices have gained about 50% since the war began. Benchmark Brent crude futures were last up 1.23% at $107.04 a barrel.

There was little relief on the geopolitical front, with President Donald Trump saying he was losing patience with Iran. Concerns over ship attacks and seizures persisted, despite Tehran saying about 30 vessels had passed through the Strait of Hormuz.

For India, which imports nearly 90% of its crude needs, elevated oil prices risk stoking inflation, pressuring the rupee and widening the current account deficit.

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"In addition to the 6-bp increase from the gold import-duty hike, we expect today's fuel price surge to add 8 bps to headline inflation in May," Barclays economists said in a note.

India's wholesale price index spiked to 8.3% in April from 3.9% in March, much higher than the market expectation of 5%-plus, which traders fear could percolate into consumer inflation.

Inflation worries also weighed on U.S. bonds, with the 10-year Treasury yield crossing the key 4.50% level to its highest in a year.

Supply pressure added to the weakness, with New Delhi set to raise 320 billion rupees through a bond sale.

Rates

India's overnight index swap rates jumped 7-10 bps as fuel hikes reshaped inflation and central bank policy expectations.

The one-year swap was at 6.1575%, the two-year at 6.3850%, and the five-year at 6.71%.