Government bonds weaken after US-Iran talks fail
What's the story
India's government bonds witnessed a major slump on Monday. The fall comes after peace talks between the US and Iran over the weekend failed to reach an agreement, sending oil prices surging. The yield on India's benchmark 6.48% 2035 bond rose by six basis points to 6.9697%, from 6.9119% on Friday.
Market impact
Nifty falls by nearly 2%
The rupee weakened by 0.7% to ₹93.38 per dollar, while the benchmark Nifty 50 index fell by nearly 2%. The selloff reflects concerns that rising crude prices could complicate India's inflation and growth outlook. "Market participants had bought bonds on Friday in anticipation of a peace deal," said Kruti Chheta, a fund manager at Mirae Asset Investment Managers (India).
Geopolitical tensions
Trump threatens to block Iran
US President Donald Trump announced a blockade of the Strait of Hormuz after the peace talks failed. "Effective immediately, the United States Navy, the Finest in the World, will begin the process of BLOCKADING any and all Ships trying to enter, or leave, the Strait of Hormuz. Any Iranian who fires at us, or at peaceful vessels, will be BLOWN TO HELL!" Trump wrote on Truth Social. Crude oil prices surged 7% to around $102 per barrel following Trump's announcement.
Investor behavior
Foreign institutional investors continue to withdraw
Foreign institutional investors (FIIs) have continued their withdrawal from Indian markets, albeit at a slower pace. On Friday, data from the National Securities Depositories Ltd., showed FIIs withdrew $223 million. They had pulled out $144 million and $743 million in the two sessions prior. In comparison, these players had withdrawn $2.2 billion and $1 billion respectively in the first two sessions of this month.
Investor sentiment
India VIX rises by over 14%
All sectoral indices in India are deep in the red in early trade. The India VIX, which had fallen 8% on Friday, has risen 14% on Monday as investor sentiment has turned volatile again due to geopolitical uncertainty. All broader market indices also declined, showing a broad-based fall in the market.