Indian 10-Year Bond Yields Climb Amid Crude Oil Price Surge Following US-Iran Talks Failure

India's Bond Prices Decline Amid Global Market Sell-Off

The Indian government bond prices declined on Monday, while yields spiked, driven by the failed US-Iran ceasefire talks and the subsequent surge in crude oil prices. This has raised fears of sustained high inflation in India. The benchmark 6.48% 2035 bond yield rose 6 basis points to 6.9697% from 6.9119% on Friday.

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.

The global market sell-off was also reflected in other countries, with Japan's 10-year bond yields rising to their highest level since 1997. Japan's 10-year government bonds (JGB) yield rose 5.5 basis points to 2.490%, the highest since early June 1997. Similar-maturity yields in Australia and New Zealand increased by at least six basis points each.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

The Reserve Bank of India (RBI) has limited scope to support yields, as bearish sentiment outweighs bullish momentum amid ongoing geopolitical tensions. Any intervention in the current environment may not effectively achieve its intended objective. The RBI conducted a seven-day variable rate reverse repo auction for ₹2 lakh crore on Friday, its first such operation in four months.

The market will also be watching for India's March inflation data due later today for further direction. 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.