Bond Yields Inch Up 2 Basis Points as Brent Crude Remains Above $100

Indian Sovereign Bond Prices Dip Amid Iran War Concerns

On March 16, Indian sovereign bond prices declined as the Iran war entered its third week, with crude prices remaining above $100 a barrel, fueling inflation fears. The benchmark 10-year bond yield decreased to 6.69% from 6.67% in the previous session.

Brent crude prices continued to rise, reaching nearly $106 a barrel, a 40% increase since the war broke out on February 28. The Strait of Hormuz disruption, affecting 20% of global energy supplies, has heightened global market volatility. Higher oil costs can lead to increased inflation, which in turn may drive bond yields upward.

India's inflation rate for February stood at 3.21%, up from 2.75% in January, although still within the 2% and 6% tolerance band set by the Reserve Bank of India (RBI). To mitigate this, the RBI has been purchasing bonds in the secondary markets and conducting open market operations to inject liquidity and lower yields below 6.7%.

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The Rupee opened at Rs 92.42 against the dollar, recovering from its previous low of Rs 92.48 on March 13. The RBI has been actively intervening in the market to support the Rupee. As per the latest data, India's foreign exchange reserves declined to $716.81 billion for the week ended March 6, down from $728.49 billion in the previous week.