Updates at market open

By Khushi Malhotra

MUMBAI, May 12 (Reuters) - India's government bonds stalled early Tuesday as fading hopes of a resolution to the Iran war kept traders wary of taking on fresh risk in a market that is already thin on buyers, with official data on retail inflation due later in the day.

The benchmark 6.48% 2035 bond yield IN064835G=CC traded at 7.0360% at 10:50 a.m. IST, little changed from Monday's close. The yield on the new 10-year 6.94% 2036 bond was steady at 6.9835%.

U.S. President Donald Trump said a ceasefire with Iran was "on life support" as Tehran rejected a U.S. proposal to end the conflict and stuck to a list of demands the U.S. president described as "garbage".

The war has effectively choked the Strait of Hormuz, causing the biggest disruption to the world energy market in history.

India is highly vulnerable to the war's impact as it imports 90% of its oil requirements, of which 30% comes through the Strait of Hormuz, JM Financial wrote in a note. The crisis has prompted Prime Minister Narendra Modi to urge citizens to adopt practises such as working from home and curbing travel to save fuel and foreign reserves.

"If the supply disruption sustains for a few more weeks, we will stick to our worst case scenario of GDP growth moderating to 6–6.5% and CAD (current account deficit) deteriorating to 1.9% of GDP," the JM Financial analysts said.

In its April policy decision, the Reserve Bank of India said GDP growth is expected to fall to 6.9% in 2026-27 from an expected 7.6% in the year ended March 31, 2026.

The rupee has depreciated over 6% since the start of the war, hitting a new record low of 95.6250 earlier in the day.

Separately, market participants will monitor April inflation data due 4:00 p.m. IST. Annual inflation likely moved closer to the central bank's 4% target from 3.40% in March.

RATES

The one-year INR1YMIBROIS=CC swap rate rose 0.175 bps to 5.99%, while the two-year swap rate INR2YMIBROIS=CC was marginally higher at 6.2375%. The most liquid five-year OIS rate INR5YMIBROIS=CC inched up to 6.6350%.