MUMBAI: Indian government bonds are likely to fall on Monday after peace talks between the US and Iran collapsed and Washington vowed to blockade Iranian ports, stoking fears of a wider war and a fresh oil shock that could cloud India’s macro outlook.
India’s benchmark 6.48% 2035 bond yield is expected to drift in a 6.93%-6.97% range, a private-bank trader said.
It settled at 6.9119% on Friday and logged its biggest weekly decline since October 2019. US-Iran talks over the weekend in Islamabad failed to reach a deal to end the war, jeopardizing a fragile two-week ceasefire.
The US Central Command said US forces would begin implementing the blockade of all maritime traffic entering and exiting Iranian ports at 10 a.m. ET (1400 GMT) on Monday. Benchmark Brent crude was last up 7% at $101.82 in Asian hours. “The Iran conflict will hurt India’s GDP.
We forecast the economy growing 6.7% in fiscal year 2027, even slower than the RBI’s 6.9% projection,“ BMI, a Fitch company, said in a note. Further depreciation in rupee could also prompt the central bank to consider a rate hike to protect the currency while preserving its foreign exchange reserves, it said.
The Indian rupee has slumped 2% since the start of the war on February 28, and closed at 92.7275 per dollar on Friday. It is also poised to weaken on Monday, traders said.
In recent sessions, the rupee has drawn support from the Reserve Bank of India’s move to impose limits on banks’ onshore forex net open positions, which forced lenders to sell dollars in the local market. The US 10-year yield was also up nearly 5 bps at 4.3528% in Asian hours, adding to the pressure on Indian bonds.