India bonds surge as oil cools on US-Iran deal hopes

Brent crude futures slid 3.2% to $109.75 a barrel in Asian trade, pulling back from last week's six-month high after Iranian officials and Qatari mediators held a third straight day of talks aimed at ending the US-Israeli war on Iran.

For India, the world's third-largest oil importer and consumer, lower crude eases inflation concerns, current-account and fiscal pressures, and can help temper expectations of aggressive tightening by the Reserve Bank of India.

Indian government bonds showed improvement as crude oil prices declined, which is expected to boost market demand. Traders are closely monitoring the upcoming US midterm elections for potential impacts on oil prices and economic policies. The falling crude prices are expected to alleviate inflation concerns and fiscal pressures for India. Furthermore, the Reserve Bank of India may adjust its interest rate plans based on these developments.

The benchmark 6.94% 2036 bond yield fell around 5.5 basis points to 7.3612% by 11:30 a.m. IST. Bond yields move inversely to prices. The rupee also strengthened 0.08% to 94.87 per US dollar.

"With crude and the rupee behaving well, market is finding some strength," said Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank.

Attention is now on US midterm elections.

Traders will gauge whether the result alters the prospects for a ceasefire and sustained oil-price correction.

"There remains a risk of a 50-basis-point December hike if inflation stays elevated, but a peace deal and a meaningful fall in crude could unwind some of those expectations," a private-bank trader said.

The RBI raised its policy rate and shifted its stance in October, signalling further tightening. It expects inflation to peak near 6% in the third quarter.

Rates

The one-year OIS fell 4.5 bps to 6.6750%, the two-year was down 6.25 bps at 6.6850%, and the five-year pared 6.5 bps to 6.7975%.