INDIA BONDS-Oil shock, U.S. treasury rout batter Indian bonds

(Updates at market open)

By Khushi Malhotra

MUMBAI, April 30 (Reuters) - Indian government bonds tumbled on Thursday, putting the benchmark 10-year note on track for its worst session in nearly a month, as surging oil prices and a hawkish U.S. Federal Reserve pushed global yields higher.

The benchmark 6.48% 2035 bond yield was up 7 basis points to 7.0634% by 11:20 a.m. IST. "Bonds were already struggling with oil issue, and Fed has further made any recovery tough," trader with a private bank said.

Brent crude rose to $125.60 a barrel, its highest since March 2022 after Russia's invasion of Ukraine.

The U.S.-Iran conflict showed no signs of easing after President Donald Trump spoke with oil companies about limiting the impact of a possible months-long blockade of Iranian ports aimed at forcing Tehran to reopen the Strait of Hormuz, which carries about a fifth of global energy supplies.

India, which imports nearly 90% of its oil needs, is especially vulnerable to a spike in crude prices. The Reserve Bank of India has said a 10% rise in oil prices above $85 a barrel could raise inflation by 50 basis points and cut growth by 15 basis points.

In its April policy, the RBI said it expects GDP growth to slow to 6.9% in 2026-27 from an estimated 7.6% in the year ended March 31, 2026, while projecting average inflation at 4.6%, assuming oil at $85.

The oil shock was compounded by rising developed-market yields, which reduce the appeal of emerging-market debt.

U.S. Treasury yields extended gains in Asia after the Federal Reserve's most divided rate decision since 1992, with the 10-year yield touching a five-week high of 4.43%.

The rupee also fell to a fresh record low on Thursday, and was last at 95.27 per dollar, as investors fretted over the economic risks confronting India.

RATES

India's overnight index swap rates surged sharply as oil jitters and rising US Treasury yields soured sentiment domestically. The one-year OIS rate was up 13.25 bps at 6.12%, while the two-year swap rate surged 12.75 bps to 6.36%. The liquid five-year OIS rate jumped 10.5 bps to 6.7150%.

(Reporting by Khushi Malhotra; Editing by Harikrishnan Nair and Nivedita Bhattacharjee)