Bond Yield Surges 3 Basis Points Amid Crude Oil Price Spike to $110

Market Volatility Persists as US-Iran Tensions Escalate

The Indian bond market experienced a reversal of early gains on April 7, with the benchmark 10-year yield rising 3 basis points as traders grew cautious of crude prices ahead of the US's deadline for Iran to open the Strait of Hormuz. The benchmark 10-year yield climbed to 7.0758 percent from 7.0458 percent in the previous session.

US President Donald Trump has threatened to take action against Iran if it fails to open the Strait of Hormuz, a key energy route, by early April 8. Iran, which has rejected a ceasefire, is seeking an end to the war and sanctions among other things. The escalating tensions have led to a surge in oil prices, with Brent crude trading at $111 a barrel, a 1.4 percent increase from the previous session. Oil prices have jumped nearly 50 percent since the US and Israel attacked Iran on February 28.

The rise in Brent crude prices has stoked inflationary pressures, which in turn have impacted domestic bond yields. The 10-year yield has already risen more than 30 basis points since the start of the war. Traders are eagerly awaiting the outcome of the first monetary policy committee meeting of FY27 on April 8, with the central bank expected to hold rates. Announcements on liquidity management, inflation, and growth projections will be closely tracked amid the ongoing Iran war.

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The government will auction Rs 34,000 crore of the benchmark 10-year paper during the day, while state governments will look to raise an additional Rs 18,159 crore through their own debt sales.

Rupee Gains Amid Calmer Markets

The rupee rose 6 paise as banks continued to unwind their arbitrage positions in the offshore non-deliverable forwards (NDF) market, while traders tracked oil prices. The rupee was trading at 93 against the dollar after ending the previous session at 93.06. Banks have until April 10 to comply with the Reserve Bank of India's directive on net open positions on the rupee (NOP-INR). After facing severe volatility last week, the rupee has been relatively calmer in recent sessions, trading in a 30-paise range.

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The market is expected to remain range-bound for a few sessions, awaiting the RBI monetary policy review, developments in the West Asia war, and the looming deadline for banks to unwind arbitrage positions. There could be some volatile moves between Rs 92.50 to Rs 93.50, however.