Bond yields trim losses after Donald Trump's signal on Iran pause

Rupee hits fresh low, nears $94 a $

The yield on the 10-year benchmark government bond eased 4 basis points towards the close of trade on Monday after US President Donald Trump announced a five-day postponement of strikes on Iran’s power plants. Earlier in the session, the yield had risen 14 basis points amid a surge in crude oil prices. International crude prices also softened after Trump’s announcement.

 

The rupee hit an all-time closing low against the dollar for a second straight session, ending the day at 93.97, as tensions in West Asia remained elevated during trading hours. The foreign exchange market had closed at 3:30 pm, well before the US announcement. Intraday, the currency touched 93.98 to the dollar. Traders said the Reserve Bank of India (RBI) was seen defending the 94-a-dollar level.

 

According to a State Bank of India report, the rupee is likely to largely trade in the range of 91.5-94.5 a dollar if the war stops in another 7-10 days. “If the war continues for another month, the rupee might cross 96 a dollar,” the report said.

 

The Indian currency has depreciated 3.19 per cent since the start of the war. This fall, though, has been moderate when compared with many other emerging-market currencies. The rupee has weakened 9.05 per cent against the greenback so far this financial year, and 4.36 per cent in the current calendar year.

 

Dealers said that if geopolitical tensions eased or moved towards a lasting truce, and the conflict fully subsided, allowing oil prices to stabilise in the $70-80 per barrel range, the rupee could appreciate to 91-92 against the dollar in the medium term. While the temporary pause may offer some relief, volatility is likely to persist.

 

According to market participants, the RBI sold around $2 billion during the day, helping prevent the rupee from weakening beyond the 94-a-dollar mark. They said that a $4.4 billion inflow from MUFG related to its stake purchase in Shriram Finance also supported the currency, limiting the extent of RBI’s intervention.

 

“If the war extends for another 2-3 weeks, we can see the rupee breaching the 95 level. But 94 is a key resistance, which may hold in the near term,” said Ritesh Bhansali, vice-president at Mecklai Financial Services.

 

The yield on the benchmark 10-year government bond rose to 6.88 per cent during the day, tracking an uptick in US Treasury yields. It later eased from the intraday high to settle at 6.84 per cent — still the highest level since January 13, 2025. It had closed at 6.74 per cent in the previous session.

 

“The yields rose this morning because of a rise in US yields and crude prices,” said a dealer at a primary dealership. “Later, the truce (5-day pause) announcement led to some decline, but the uncertainty still persists.”

 

Brent crude was trading above $110 a barrel during the day, but it softened following the announcement of the five-day ceasefire, settling around $101 a barrel by the close of domestic trading hours.

 

The yield on the 10-year US Treasury note rose to 4.44 per cent during the day, against the previous day’s 3.87 per cent.

 

Foreign exchange market participants said continued foreign portfolio outflows from both equity and debt markets and modest net foreign direct investment could deepen the balance of payments deficit, adding further strain on the currency. “We expect the current account deficit to be around $60 billion (1.3-1.5 per cent of gross domestic product), assuming oil price at $100 a barrel,” the SBI report said, adding balance of payments was also expected to be in deficit for a third consecutive year, at around $24 billion.

 

According to market participants, while the rupee appears undervalued on a real-effective-exchange-rate basis, with valuations at multiyear lows, negative sentiment — driven by geopolitical risks, higher oil prices, and concerns around growth, inflation, and fiscal dynamics — is weighing on it. In the near term, the currency could remain volatile and even test 95-96 a dollar in a risk-off environment. However, a de-escalation in the conflict and moderation in oil prices towards $70-80 per barrel could support a recovery in the rupee towards 91-92 per dollar levels.