Indian bonds rally most since April as oil slides after US midterm verdict

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The benchmark 6.94% 2036 bond yield dropped more than 11 basis points to 7.1880%, taking its three-day fall to about 22 bps. Bond prices move inversely to yields.

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Indian government bonds experienced a significant rally influenced by falling oil prices after the US midterm elections. The benchmark bond yield dropped notably, reflecting a three-day decline in yields. Brent crude oil prices decreased, easing inflation and fiscal pressures on India. The Reserve Bank of India anticipates inflation will peak this quarter, supporting future bond market performance.

Brent crude fell 1.4% to $102.2 a barrel on Wednesday after hitting $117 last week, easing pressure on inflation, the current account and the fiscal outlook in India, the world's third-largest oil importer and consumer.

US Treasury yields also softened, with the 10-year yield down 1.5 bps. The dollar index was down 0.6%, boosting the Indian rupee.

Democrats seized control of the Senate and House, handing President Donald Trump a sweeping electoral rebuke and sharpening market focus on Washington's next move in the Iran war.

The party campaigned on affordability and corruption, blaming Trump's tariffs and the Iran conflict for higher costs.

Oil remains the pivotal macro trigger for Indian markets, traders said, with a sustained slide suggesting that the central bank could limit further tightening.

The RBI said it expects inflation to peak at 6% in the October-December quarter, based on crude averaging $95 a barrel in the second half of 2026-27, after raising the repo rate and turning its stance hawkish in October.

"Any moderation in inflation, improvement in liquidity, or reduction in geopolitical risks could support bond market performance," Tata Mutual Fund said in a note.

Markets are also tracking Qatar-led mediation efforts after the midterms, with any credible de-escalation likely to deepen the oil slide and extend the bond rally, a private-bank trader said.

India's overnight indexed swap dived as softer crude cooled rate hike fears.

The one-year OIS rate fell 13 bps to 6.5%, the two-year rate eased 17 bps to 6.47%, and the five-year rate dropped 14.25 bps to 6.59%.