Bond Yields Decline Amid Global Market Volatility

Benchmark 10-Year Government Bond Yield Eases on Import Duty Hike

The benchmark 10-year government bond yield in India eased by around two basis points on May 13, following the government's decision to raise import duties on gold and silver. Despite this move, concerns over elevated crude prices remain a worry.

Market Reaction

The government increased tariffs on gold and silver to 15 percent from 6 percent on May 12, in an effort to curb demand for these metals and ease pressure on foreign exchange reserves. The hike in tariffs was implemented by imposing a 10 percent basic customs duty and a 5 percent Agriculture Infrastructure and Development Cess (AIDC) on imports of gold and silver, resulting in an effective import tax of 15 percent.

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Government's Move to Curb Gold Purchases The government's decision to hike tariffs on gold and silver came two days after Prime Minister Narendra Modi urged citizens to cut back gold purchases for a year. This move has helped the rupee, which opened two paise higher at 95.61 against the dollar on May 13, after ending the previous session at a record closing low of 95.63.

However, market participants remain cautious due to the ongoing concerns over Brent crude prices, which were hovering near $106 a barrel on May 13. The US-Iran logjam, which is threatening an already tenuous ceasefire, has fuelled fears of prolonged supply-chain disruptions. Shipping through the Strait of Hormuz, a key energy route, remains largely blocked, which handled around 20 percent of the global oil and gas flows before the war.

Impact on India's Economy For India, which meets around 85 percent of its energy needs through imports, higher oil prices can stoke inflation. Retail inflation edged up to 3.48 percent in April from 3.4 percent in March, official data released after market hours on May 12 showed.

Global Headwinds Global headwinds intensified as US headline inflation surged to 3.8 percent in April, the highest since May 2023, dashing hopes of Federal Reserve rate cuts.

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