MUMBAI: Indian government bonds surged on Wednesday on optimism that a potential U.S.-Iran peace deal could cool crude oil prices, boost risk sentiment, and ease inflation concerns.
The benchmark 6.48% 2035 bond yield ended at 6.9219%, sliding 10 basis points in its biggest single-session plunge since April 8. It closed at 7.0184% on Tuesday. Bond yields move inversely to prices.
“In the event of a positive resolution on the war front, we could see a swift rebound toward the 6.80%–6.85% range, driven by the currently light investor positioning and as the market has overpriced fears of rate hikes in 2026,” Vikas Garg, head of fixed income at Invesco Mutual Fund, said.
Benchmark Brent crude slumped 7% to about $102 per barrel after declining 4% on Tuesday, following a media report that the U.S. may sign a one-page memorandum of understanding with Iran to end the war.
READ MORE: Indian bonds seen in firing line as US-Iran tensions erupt again
A source from mediator Pakistan familiar with the negotiations, also confirmed the development.
Oil prices came under pressure after U.S. President Donald Trump said he would temporarily pause a U.S. operation to escort commercial ships through the Strait of Hormuz, citing progress toward a broader agreement.
A sustained reopening of the strait, a vital energy-trade chokepoint, is crucial for oil-importing economies such as India.
Higher oil prices fuel domestic inflation, pressure the rupee, worsen the current-account balance and complicate the government’s fiscal arithmetic.
Focus is also on a key debt sale on Friday, as New Delhi will raise 340 billion rupees ($3.59 billion) through a new 10-year bond.
The new paper is expected to replace the existing benchmark over the coming weeks and the market anticipates cutoff yield to be 2 bps lower than the benchmark.
Rates
India’s overnight index swap (OIS) rates nosedived amid the unwinding of heavily paid positions tracking oil prices.
The one-year OIS rate ended at 5.90%, while the two-year swap rate ended at 6.10%.
The five-year rate settled at 6.4950%, all down by 14-18 bps.
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