Foreign investors are rapidly unwinding bets on further interest rate hikes in India, driving turnover in the country's five-year overnight index swaps to record levels.
The surge in activity has pushed the five-year OIS rate down to a four-month low of 6.1%, a level only 10 basis points above where it stood before the outbreak of the Iran conflict.
2 billion into Indian government bonds, marking the strongest monthly inflow in 15 months.
The repricing reflects a significant shift in market sentiment, as traders adjust to the prospect that the Reserve Bank of India may not need to tighten policy as aggressively as previously feared.
The compression of the curve suggests that inflationary pressures, which had spiked due to geopolitical tensions and energy costs, are now viewed as more contained than earlier in the crisis.
This move comes after a period of intense volatility in Indian sovereign debt markets.
In June, foreign investors directed a record $5.2 billion into Indian government bonds, marking the strongest monthly inflow in 15 months.