Rising oil prices cap India bond rally; traders cash in gains

The benchmark 6.94% 2036 bond yield eased nearly 2 basis points to 7.1710%, extending its four-session decline to around 24 bps. It reversed from an intraday low of 7.0669% as traders locked in gains.

Brent crude fell to $93.40 a barrel in Asian trade before rebounding about $3 to $96, as investors assessed the outlook for the US-Israeli war with Iran after President Donald Trump's Republican Party suffered heavy lossesin the midterms.

Indian government bonds saw a rise as traders reacted to a US Treasury rally and falling crude prices. The benchmark 6.94% 2036 bond yield declined by nearly 2 basis points after intraday fluctuations. Oil prices rebounded after initially falling, causing traders to lock in profits. Attention will turn to upcoming inflation data, with expectations for an increase in October.

The US 10-year Treasury yield was last at 4.8777%, off an intraday low of 4.83%, after falling 6 bps on Wednesday.

Democrats vowed on Wednesday they would use their victory to constrain Trump's agenda, but the absence of clarity on the Middle East conflict kept investors cautious.

The conflict has unsettled global debt markets by stoking inflation, worsening fiscal strains and prompting central banks to tighten policy.

Indian bonds were among the weakest performers in emerging Asian markets in October, when the benchmark 10-year yield briefly tested 7.50% for the first time in four years.

While yields have eased in November, they remain 50 bps above pre-war levels.

"Right now markets are celebrating cautiously," said Kruti Chheta, fund manager at Mirae Asset Mutual Fund. "If there is a definite plan of negotiation between US and Iran we will see further rally from here."

Attention now turns to India's inflation data next week for clues on the central bank's policy path.

ICRA expects headline CPI inflation to accelerate to 6.1% in October 2026 from 5.5% in September, breaching the Reserve Bank of India's upper tolerance limit, the rating agency said in a note.

Overnight indexed swap rates fell sharply on Thursday, signalling that markets were dialing back expectations of further rate hikes.

The one-year OIS rate ended 10 bps lower at 6.4050%, while the two-year rate slid9 basis points to 6.4175% and the five-year rate dropped 8 basis points to 6.5275%.