The Indian government bond prices declined, while yields spiked on Monday after the failed US-Iran ceasefire talks drove up crude oil prices, raising fears of sustained high inflation.
India’s benchmark 6.48% 2035 bond yield rose 6 basis points to 6.9697% from 6.9119% on Friday. Yields move inversely to bond prices.
The risk-off sentiment was evident across both currency and equity markets. The Indian rupee depreciated by 0.7% to 93.38 against the US dollar, while benchmark indices — the Sensex and Nifty 50 — declined nearly 2% each.
The market sell-off reflected growing concern that elevated crude oil prices could complicate India’s inflation trajectory and growth outlook.
“As expected, the 10-year benchmark yield and crude prices moved higher following the breakdown of US–Iran talks in Islamabad. I anticipate that the 10-year yield will remain under pressure until a meaningful resolution is reached,” said Mataprasad Pandey, Vice President, Arete Capital (Choice Group).
At present, he believes, the Reserve Bank of India (RBI) has limited scope to support yields, as bearish sentiment outweighs bullish momentum amid ongoing geopolitical tensions, and any intervention in the current environment may not effectively achieve its intended objective.
Why are Bond yields rising?
Government bond yields have been rising globally as elevated crude oil prices amid expectations of prolonged US-Iran war raised inflation risks, while the ceasefire reached last week remained fragile.
Japan’s 10-year bond yields rose to their highest level since 1997, while similar-maturity yields in Australia and New Zealand increased by at least six basis points each.
The benchmark 10-year Japan’s government bonds (JGB) yield rose 5.5 basis points (bps) to 2.490%, the highest since early June 1997, while the five-year yield rose 4 bps to a record high of 1.900%.
US President Donald Trump said that the US Navy would start blockading the Strait of Hormuz, raising the stakes after the US-Iran talks failed to reach a deal, jeopardising a two-week ceasefire.
This led crude oil prices to jump above $100 a barrel. Brent crude futures were trading 6.64% higher at $101.52 a barrel, while US West Texas Intermediate gained 7% to $103.33 a barrel.
Meanwhile, India’s banking system liquidity was at ₹5.54 lakh crore on Friday – levels last seen in May 2022 – despite the RBI’s surprise cash-drain operation last week.
The RBI conducted a seven-day variable rate reverse repo auction for ₹2 lakh crore on Friday, its first such operation in four months.
Mutual funds and foreign lenders were net buyers on Friday, purchasing a combined ₹6,226 crore worth of government bonds, Reuters reported.
Traders will also watch for India’s March inflation data due later today for further direction.
(With inputs from Reuters)
