Indian bonds swung higher for a fifth straight session on Monday, supported by a pause in U.S.-Iran hostilities after renewed strikes over the weekend, though a widening monsoon deficit capped gains.
India's benchmark 10-year yield settled nearly 2 basis points lower at 6.7515%, falling for a fifth straight session and hovering at its lowest since March 20. Bond yields move inversely to prices.
The 10-year yield has eased over 22 bps so far in June, buoyed by over a 20% decline in oil prices.
Indian bonds shook off early caution after US and Iran agreed to halt Gulf hostilities and resume talks over the Strait of Hormuz, reviving hopes for an interim peace deal.
Little impact on oil further bolstered market sentiment, with brent crude marginally higher at $72.52 per barrel.
Some investors, however, treaded cautiously, hedging the risk in the overnight market.
The one-year OIS rate rose around 1 bp to 5.77%, while the two-year rate was steady at 5.9125%. The five-year rate closed at 6.1875%, up 1 basis point.
Rising foreign investment also backstopped bonds, with monthly inflows poised to hit a record $3 billion in June.
Monsoon risk weighs
All-India cumulative rainfall deficit widened further to 43.1% as of June 28, from 42.2% on June 21. All regions are currently experiencing deficient rainfall, with the deficit widest in the central region, Barclays wrote in a note.
"One key factor preventing a steeper decline is the erratic monsoon, which continues to pose an upside risk to food inflation," said Saurav Ghosh, co-founder of Jiraaf, a online bond platform.
"For now, the bond market appears to be balancing improving global conditions against domestic inflation risks, with yields likely to remain range-bound until there is greater clarity on both fronts."
