The Indian government bonds traded lower on Monday, after the crude oil prices jumped amid escalating military conflict in the Middle East, following the US and Israel’s strikes on Iran, weighing on investors’ risk appetite.
The benchmark 6.48% 2035 bond yield rose to 6.6894%, after ending at 6.6601% on Friday. Bond yields move inversely to prices.
The rupee slid to its one-month low and the Indian stock market slumped as the Iran war hurt risk assets and lifted oil prices. The rupee fell 0.4% to 91.35 per dollar while the benchmark indices, Sensex and Nifty 50 crashed nearly 2% each.
The US and Israel carried out their most extensive military strikes on Iran in decades on Saturday, killing Supreme Leader Ayatollah Ali Khamenei and sinking several Iranian naval vessels. Israel launched fresh airstrikes targeting Tehran and broadened its campaign to include attacks on Iran-backed Hezbollah positions in Lebanon, as US President Donald Trump indicated that the military offensive could continue for weeks.
Crude oil prices rallied sharply amid concerns that the escalating conflict could disrupt energy supplies, particularly through the Strait of Hormuz, one of the world’s most critical oil transit chokepoints.
The benchmark Brent crude oil prices surged to $82.37 per barrel — its highest level since January 2025 — before easing to $77.10 as markets assessed the evolving situation.
“Markets will be closely monitoring geopolitical developments given the potential impact on oil prices and cascading impact on currency and CAD. Iran’s proximity to the Strait of Hormuz presents a key risk to seabound crude and any prolonged blockade to the Strait could induce significant volatility to oil prices,” said Basant Bafna, Head – Fixed Income, Mirae Asset Investment Managers (India).
While OPEC+ has agreed to resume oil production increases at a slightly accelerated pace in view of prevailing geopolitical developments, potential volatility may persist based on the intensity and duration of conflict, he added.
“As an immediate reaction, Money Markets have remained flat while benchmark Gsec yields have risen by ~ 3-4 bps. Corporate Bonds are expected to broadly track sovereign yields,” said Bafna.
The market is witnessing early selling pressure in longer-dated bonds, a trader at a foreign bank said, according to Reuters. However, traders remain optimistic that the central bank could step in with secondary-market bond purchases should yields rise further, providing support to prices and containing volatility.
US Treasury Yields, Japanese Bond Yields
Meanwhile, US government securities reversed their earlier gains as initial flight-to-safety moves subsided and investors weighed how long the war would last.
US 10-year yields climbed two basis points to 3.96% after earlier falling to an 11-month low of 3.92%. Thirty-year yields rose four basis points to 4.65%.
In Asia, Japanese shares and the yen fell, while government bonds rose, as investors saw no clear end to US and Israeli military strikes following the killing of Iran’s leader. The Japanese yen weakened 0.6% to 156.95, while the yield on the 10-year Japanese government bond fell 5 basis points (bps) to 2.06%.
(With inputs from Agencies)
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