De-escalation of Iran-Israel conflict pushes oil down, aids India bond bulls
Indian government bonds experienced a rise following a sharp decrease in oil prices
Synopsis Indian government bonds experienced a rise following a sharp decrease in oil prices, spurred by optimism from a potential Israel-Iran ceasefire. This development eased concerns about supply disruptions and inflationary pressures. Consequently, the yield on the benchmark 10-year bond decreased, while the market anticipates upcoming bond sales by New Delhi and state governments. Indian government bonds climbed in early deals on Tuesday, following a sharp drop in oil prices, as U.S. President Donald Trump's announcement of an Israel-Iran ceasefire relieved concerns over supply disruptions, easing inflationary woes.
ADVERTISEMENT The yield on the benchmark 10-year bond was at 6.2853% as of 10:00 a.m. IST, a trader at a private bank said, after ending at 6.3053% on Monday.
The five-year 6.75% 2029 bond was at 6.0041% after ending at 6.0304%.
Yields move inversely to prices. "The developments are favourable for bond bulls and we have already seen the reaction, but any larger declines based on this, are unlikely from the current levels," trader with a state-run bank said. Oil prices tumbled, extending their declines in Asian hours, with the benchmark Brent crude contract stabilising below $70 per barrel, after hitting a five-month high of $81.40 on Monday.
ADVERTISEMENT Prices began dropping after Iran chose not to take any action to disrupt supply through the Strait of Hormuz but instead attacked a U.S. military base in Qatar. India imports a bulk of its crude oil needs and higher prices could impact the nation's inflation outlook.
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Earlier this month, the Reserve Bank of India reduced its inflation forecast for 2025 to 3.7% and cut its key lending rate by a steeper-than-expected 50 basis points. Focus is expected to shift to fresh supply as New Delhi will sell 300 billion rupees ($3.48 billion) worth of the benchmark bond on Friday, while states aim to raise 272 billion rupees through debt sale later in the day.
ADVERTISEMENT RATES Indian overnight index swap (OIS) rates declined amid receiving interest across the curve.
The one-year OIS rate was at 5.48% and the two-year OIS rate was at 5.49%. The liquid five-year dropped 7 basis points to 5.69%.
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