Indian government bonds rallied sharply on Monday, pushing the benchmark 10-year yield to its steepest one-day decline in two months.
The yield on the 6.94% 2036 bond settled at 6.7739%, marking a significant repricing of inflation expectations as the recent surge in crude oil prices lost momentum.
The move reflects a broader shift in market sentiment as energy costs, a primary driver of inflation in India, showed signs of cooling.
With Brent crude retreating from recent highs, investors are increasingly pricing in a pause in the upward pressure on domestic prices.
This development provides relief to the Reserve Bank of India, which has been navigating the delicate balance between supporting growth and containing inflation.
The bond rally extends a trend that began in June, when Indian yields recorded their largest monthly decline in seven years.