India bonds cling to range as traders parse oil risk

India's overnight indexed swap rates eased, though rupee weakness and higher oil prices limited the move.

The one-year INR1YMIBROIS=CC swap fell 1.5 bps to 5.81% and the two-year INR2YMIBROIS=CC dropped 1 bp to 6.04%. The liquid five-year INR5YMIBROIS=CC rate gave up 3.25 bps to 6.3875%.

Brent crude futures climbed 0.6% to $91.60 a barrel in Asian trade, extending gains into a fourth day after U.S. President Donald Trump said no talks with Iran were under way and Iran said the Strait of Hormuz remained blocked.

For India, the world's third-largest oil importer, higher crude prices pressure the rupee, the country's economic growth, fiscal metrics and inflation.

Indian government bonds were hemmed in a tight range on Wednesday, as support from softer U.S. Treasury yields clashed with surging oil prices.

The benchmark 6.94% 2036 bond IN069436G=CC yielded 6.8170% at 12:30 p.m. IST, versus 6.8269% at Tuesday's close. The yield had risen 7 basis points over the previous two sessions before pausing on Wednesday.

Softer U.S. Treasury yields partly cushioned the oil shock. The 10-year yield slipped to 4.69% in Asian trade, back below the closely watched 4.70% mark, lifting domestic sentiment.