India bonds up on oil slump, foreign inflows; 10-year yield posts biggest monthly fall in 7 years

MUMBAI: Indian government bonds gained in June, with the benchmark 10-year yield logging its biggest monthly decline in seven years, as a crash in oil prices and a surge in foreign investment bolstered sentiment.

The yield on the benchmark 6.94% 2036 bond ended at 6.7501%. It has nosedived 26 basis points in June, its steepest monthly fall since July 2019 and 28 bps this quarter, biggest since quarter ended March 2020.

Indian debt markets gathered significant momentum this month, supported by a combination of domestic policy action, stronger foreign demand and a more favourable external backdrop.

The Reserve Bank of India rolled out measures aimed at attracting dollar inflows and stabilising the rupee, and the government’s decision to remove taxes on foreign investment further improved the appeal.

Foreign investors bought nearly $3 billion of government bonds on a net basis under the Fully Accessible Route (FAR) in June, marking the highest monthly inflow on record.

FAR securities, which are freely accessible to overseas investors, are already part of three major emerging-market debt indexes. Traders anticipate their inclusion in the Bloomberg Global Aggregate Index soon.

“Investors will watch how smooth the (settlement) process is for some time. Once they are convinced that the operational issues are resolved, they will be happy to vote in favour of inclusion,” said Nagaraj Kulkarni, chief rates strategist, South Asia & Indonesia, and head - flows strategy at Standard Chartered Bank.

External conditions have also turned supportive, with the Brent crude sliding more than 21% this month after an interim U.S.-Iran peace deal halted hostilities and reopened the Strait of Hormuz.

Rates

India’s overnight index swap rates also crashed in June, tracking the oil correction as well as retreating rate hike bets. Swaps, which priced in more than 125 bps of rate hikes earlier, are now expecting only 50 bps of hikes.

The six-month and one-year rates ended at 5.46% and 5.76%, posting their biggest monthly fall since April 2025.

Meanwhile, the longer tenor two-year swap rate slumped 38 bps to 5.9050%, and the five-year rate tumbled 42 bps to 6.1750%. Both logged their biggest monthly fall since November 2022.