Indian bonds jump as traders lap up debt after Israel-Iran ceasefire

An Israel-Iran ceasefire and the ensuing slump in oil prices boosted Indian government bonds on Tuesday, as traders resumed buying and covered short positions.

The yield on the benchmark 10-year bond ended over 5 basis points lower at 6.2504%, the sharpest decline since May 13. The five-year 6.75% 2029 bond yield was at 5.9870%, versus its previous close of 6.0304%.

Yields move inversely to bond prices.


U.S. President Donald Trump announced on Monday a ceasefire between Israel and Iran. Both Israel and Iran confirmed the ceasefire, but reports of a violation hours later raised some doubts about the truce.

Still, global markets were largely relieved by the prospect of an end to the 12-day war.

Brent crude was down nearly 2.7% at $69.52 per barrel in Asian hours, after easing over 7% on Monday.

"The tensions are dying down after the ceasefire," said Gopal Tripathi, head of treasury and capital markets at Jana Small Finance Bank.

"Commodity prices are also cooling down, so local factors like demand and supply should take precedence now."

He expects the yield on the new 10-year bond to be rangebound between 6.20% and 6.30% in the near term.

Meanwhile, India's banking system liquidity surplus shrunk to its lowest in three weeks due to tax outflows.

The surplus was at 2.44 trillion rupees($511.50 billion) on Monday.

RATES
The Indian overnight index swap (OIS) rates declined across tenors on Tuesday, in line with government bond yields.

Traders recommended receiving the most liquid 5-year OIS rate, with a view that the rate could extend its slide if oil prices fell further.

The one-year OIS rate ended 4 basis points lower at 5.48% and the two-year OIS rate fell by 6 basis points to 5.47%.

The liquid five-year dropped 8 basis points to 5.67%. ($1 = 86.0220 Indian rupees)