Indian bonds seen rising on optimism over US-Iran peace deal

Indian government bonds are expected to extend gains in early deals on Thursday, as oil prices remain steady and market sentiment improves amid growing optimism over a U.S.-Iran peace deal.

India's benchmark 6.48% 2035 bond yield is expected to move in a 6.83%-6.89% range, a private-bank trader said. ‌It settled at ⁠6.8662% ⁠on Wednesday.

"The sentiment is again shifting towards the bulls, and we could see ​some more decline in yields during the session," the trader said.


The benchmark Brent crude contract was steady around $95 per barrel amid hopes for easing U.S.-Iran tensions, following reports that Iran could allow ships to pass through around the Strait of Hormuz.

The White House also ⁠expressed optimism ‌on Wednesday about reaching a deal to end ​the conflict, ​while also warning of increasing economic pressure against Tehran ⁠if it remains defiant.

The war has shut the Strait ​of Hormuz, a key waterway for crude and refined ​product flows out of the Persian Gulf to global buyers, particularly in Asia and Europe.

Higher oil prices are detrimental to India, which relies heavily on imports to meet its energy need, and have pushed up bond yields and dragged the local currency lower ‌since the war started on February 28.

However, the fall in bond yields may be capped ahead of fresh debt ​supply, as ​New Delhi will ⁠raise 320 billion rupees ($3.43 billion) through the sale of 5-year and 40-year bonds on Friday.

RATES

India's overnight index swap rates are likely to move ​with a receiving bias.

The one-year OIS rate ended at 5.76% on Wednesday, while the two-year swap rate closed at 5.98%. The liquid five-year rate settled at 6.3250%.

The swap rates have eased by around 60 basis points from their highs hit on April 2. ($1 = 93.2310 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Eileen Soreng)