India bonds set for pre-policy rally after US-Iran ceasefire

MUMBAI: Indian government bonds are set to open sharply higher on Wednesday, as plunging oil prices and Treasury yields lift sentiment after the US agreed to a two-week Iran ceasefire, calming fears of an immediate escalation in the war.

Still, major moves could be curbed ahead of the Reserve Bank of India’s monetary policy decision at 10:00 a.m. IST.

The benchmark 6.48% 2035 bond yield will likely trade in a 6.98%-7.02% range until the policy announcement, a private bank trader said, after ending at 7.0458% on Tuesday.

“At least for now any major tension over escalation in the Middle East war has been allayed, and that in itself is a major boost for all the assets,” the trader said.

Benchmark Brent crude slipped to around $95 per barrel after US President Donald Trump said he had agreed to a two-week ceasefire with Iran, contingent on the immediate and safe reopening of the Strait of Hormuz.

Trump’s turnaround came shortly before a deadline he had set for Iran to reopen the vital waterway, which accounts for roughly 20% of global oil flows, or face widespread attacks on its civilian infrastructure.

Iran later said it would halt its attacks if strikes against it ceased.

Meanwhile, the 10-year US treasury yield dropped to 4.25%, further supporting the bulls.

Back home, bond yields and swap rates had climbed sharply since the war began on February 28, with swaps pricing 100-125 bps of rate hikes in this financial year.

Elevated oil prices are detrimental for India, the world’s third-largest crude importer, as they threaten to worsen domestic inflation and widen the current account deficit.