India's 10-Year Bond Yield Rises Following Fuel Price Hike and Inflation Concerns

India's Benchmark 10-Year Bond Yield Rises Amid Fuel Price Hikes and Geopolitical Tensions

India's benchmark 10-year bond yield rose in early trade on May 15, increasing concerns over higher inflationary pressures. The benchmark yield was trading at 7.057 percent at 9:10 am, up 4 basis points from its previous close of 7.02 percent.

Market participants are concerned that the increase in petrol and diesel prices could push headline inflation higher in the coming months. Experts estimate that an increase of about 3 to 5 percent in fuel prices could add around 15 to 25 basis points to headline inflation, besides second-round impacts.

Global factors also remain supportive of higher bond yields. The Federal Reserve officials continued to stress inflation risks after stronger-than-expected US inflation data over the last two days. The 10-year Treasury yield remained elevated near 4.52 percent due to robust economic data from the US.

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

Meanwhile, oil prices continued to rise as the Strait of Hormuz remained effectively closed amid ongoing geopolitical tensions in the Middle East. Brent crude traded near $107 a barrel and was up around 6 percent for the week as markets priced in the risk of prolonged supply disruptions.

Experts said uncertainty around the US-Iran situation continues to keep a significant geopolitical premium embedded in crude prices. Traders are increasingly factoring in the possibility of prolonged disruptions or renewed conflict, reducing effective spare oil supply capacity and supporting structurally higher Brent crude prices.