Indian government bonds extended their decline on Friday, with the benchmark 6.48% 2035 bond yield rising to 6.9659% as of 10:30 a.m. IST, up from 6.9328% on Thursday, according to The Economic Times. This marks the seventh consecutive day of losses for Indian government bonds as renewed attacks between the U.S. and Iran threaten a fragile ceasefire. The latest escalation comes as Iran accused the U.S. of breaching the month-long ceasefire, while Washington described its actions as retaliatory strikes after Iranian forces fired on U.S. naval vessels moving through the strait. A trader noted that "renewed attacks are a clear negative for Indian bonds and would keep the bias for yields on the upside, but for now the damage looks contained and we may not see a test of the 7% level today."
Oil prices climbed 6% to $114 a barrel on Monday before easing more than 1% in Asian trading, as reported by The Economic Times. The Strait of Hormuz, which carries roughly one-fifth of the world's oil and natural gas flows, has stayed largely shut since the war started. For India, which imports nearly 90% of its crude oil needs, a sustained rise in prices could stoke inflation, pressure the rupee, widen the current-account deficit and complicate the government's fiscal calculations. The 10-year U.S. Treasury yield rose nearly 7 basis points following the attacks, though oil prices have since retreated with Brent crude falling $1.13 to $113.31 per barrel on Tuesday, while benchmark U.S. crude slipped $2.04 to $104.38 per barrel. According to SPI Asset Management, both main oil contracts slipped Tuesday, with West Texas Intermediate shedding more than two percent and Brent shedding more than one percent to sit around $113.
Despite the ongoing geopolitical tensions, Indian government bonds saw a rebound with value buyers stepping in after a recent surge in yields. According to The Economic Times, early election trends favoring the ruling party and a stabilization in oil prices, despite ongoing geopolitical tensions, boosted market confidence. This positive sentiment helped push benchmark bond yields lower, offering relief to investors concerned about inflation and import costs. However, the latest market reaction shows that fears over the fragile US-Iran ceasefire continue to weigh on Asian equities, indicating that geopolitical uncertainties remain a key factor influencing investor sentiment.
India's benchmark 6.48% 2035 bond yield was up 2 basis points at 7.0451% as of 10:45 a.m. IST, as reported by The Economic Times. A private bank trader indicated that if the war drags on, the 10-year yield could climb to 7.25%. Additionally, sentiment on India has turned more bearish, with UBS lowering its FY27 growth forecast by 50 basis points to 6.2%. The fragile ceasefire between the U.S. and Iran was tested Monday after the U.S. military said it had sank six Iranian small boats targeting civilian ships, while two U.S.-flagged ships successfully passed through the Strait of Hormuz. As per SPI Asset Management, the response from Tehran has been clear, signalling that any proximity to its strategic perimeter will be met with force, raising the stakes into something that feels less like brinkmanship and more like an asymmetric pressure campaign.
New Delhi plans to sell a new 10-year bond worth ₹340 billion ($3.60 billion) this week, which could add pressure on the current benchmark as the issuance approaches. According to The Economic Times, this substantial bond sale could influence market dynamics and potentially impact the current yield curve structure. The paper will replace the existing benchmark bond in the coming weeks, with traders expecting the cutoff yield to be 2 basis points lower than the current benchmark bond. The timing of this issuance coincides with ongoing geopolitical uncertainties affecting global financial markets, with the latest developments showing that fears over the fragile US-Iran ceasefire continue to weigh on Asian equities.
