Bonds Come Under Pressure as 10-Year Yield Increases 2 Basis Points Amid Rising Oil Concerns

India's Sovereign Bonds Weaken Amid Rising Brent Crude Prices

Indian sovereign bonds weakened on April 23, with the benchmark 10-year yield rising on higher Brent crude prices. The benchmark 10-year bond yield was trading at 6.94 percent after ending the previous session at a two-week high of 6.92 percent. This increase is attributed to the overnight surge in Brent crude prices, which gained almost 2 percent.

The rise in Brent crude prices, currently trading close to $103 per barrel, is largely due to the ongoing tensions in the Middle East. Iran has captured two vessels attempting to exit the Gulf via the Strait of Hormuz, while a continuous blockade on trade via the key energy route has made traders cautious about inflationary pressures and supply chain disruptions. The US has also intercepted three vessels, further contributing to the uncertainty.

The elevated oil prices are detrimental to India's inflationary picture and could further weigh on domestic bond yields. The recent minutes of the Reserve Bank of India's latest policy meet reveal that the Monetary Policy Committee viewed the Iran war-driven oil price spike as a supply shock. As a result, the committee chose to maintain the status quo to avoid potential policy errors.

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Monetary policy committee member Indranil Bhattacharya expressed caution for the inflation outlook for fiscal year 2027, despite headline inflation remaining well within the target in the first two months of 2026 under the new CPI series. The rupee has also been affected, opening 20 paise lower on April 23, marking the fourth straight day of fall. The rupee has already lost nearly a percent in the last three trading sessions.

The appreciation of the rupee appears to have run its course post the restrictions imposed in the offshore forwards market, and now the trajectory of the currency will be driven by macro-economic factors.