By Dharamraj Dhutia

MUMBAI, June 15 (Reuters) - Indian government bonds are poised to start the week on a positive note, as the United States and Iran finally reached an initial deal to end the war that has lasted over 15 weeks, and to resume traffic through the Strait of Hormuz.

The yield on the benchmark 6.94% 2036 note IN069436G=CC is likely to move in the 6.85%-6.89% range, according to a private bank trader. It closed at 6.8957% on Friday, with the yield dropping 7 basis points for the week. Yields move inversely to bond prices.

"It was just a matter of when and not why about the peace deal coming through, and it will definitely add to the positive momentum that has built up since the central bank policy decision," the trader said.

The benchmark Brent crude contract was down 4% in Asian hours, dropping to its lowest level in three months, after U.S. President Donald Trump and Iran's deputy foreign minister said they had reached an initial deal to end the war.

The U.S. and Iran will sign a memorandum of understanding in Switzerland on Friday, said the prime minister of Pakistan, whose country has served as a mediator.

Trump said on Sunday that the Strait of Hormuz would be open "toll-free" and that a U.S. naval blockade of Iranian ports would also end.

The strait, a critical chokepoint for a fifth of the world's oil and liquefied natural gas supply, has remained largely closed since the war started on February 28. O/R

India imports about 90% of its crude oil, leaving the economy vulnerable to oil price swings.

Local sentiment remains supportive after the central bank announced measures to attract foreign inflows, support the rupee and strengthen external balances.

Foreign investors have poured in over $1.6 billion in the last six sessions.

RATES

India's overnight index swap rates are set for a larger collapse, as they remain more sensitive to the move in oil prices.

The one-year swap rate INR1YMIBROIS=CC closed at 5.9650%, while the two-year rate INR2YMIBROIS=CC dropped to 6.1150%. The more liquid five-year rate INR5YMIBROIS=CC settled at 6.3375%.