India's 10-year bond yield slumps most in four years on Iran truce, RBI policy

Indian ​bonds rallied on Wednesday, with ​the benchmark yield posting its biggest fall in four years, ​as oil prices slumped following a two-week truce between the U.S. and Iran, while the central bank kept its policy rate unchanged.

Brent oil tumbled 14% to below $94 a ‌barrel after ⁠U.S. President Donald ⁠Trump said he had agreed to a ceasefire with Iran, subject to the immediate ​and safe reopening of the Strait of Hormuz, a key energy cokepoint.

The conflict, which dragged ​for more than a month, had sent Brent surging more than 50%. India, which imports 90% of its oil supplies, is among the most ​vulnerable to a prolonged supply disruption.


The benchmark 6.48% ⁠2035 bond ‌yield fell about 15 basis points to 6.8984%, the ​lowest level in ​two weeks in its sharpest single-session decline since May ⁠2022.

The Reserve Bank of India kept its policy rate ​and stance unchanged, while warning about lower growth and ​higher inflation.

The policy was neutral to mildly dovish, with the RBI adopting a wait-and-watch approach, Vikas Garg, head of fixed income at Invesco Mutual Fund said.

"This policy stance is likely to help markets price out fears of any immediate rate hike. At current elevated yield levels, the risk-reward dynamics ‌have now turned favourable across the yield curve."

The bond yield has jumped 24 bps through Tuesday's close since the war ​broke out.

RATES

India's ​overnight index swap rates ⁠posted a record decline as traders unwound rate hike bets. Swap markets are now pricing in two rate hikes this financial year, from more than ​four hikes until last week.

RBI Governor Sanjay Malhotra cautioned against reading too much into the move in swap rates, saying the market is "very thin."

The one-year OIS rate plunged 30bps to 5.85%, while the two-year plummeted 35.75bps to 6%. The most liquid five-year dropped 34.75bps to end at 6.31%.