India 10Y Yield Falls on Inflation Data

The yield on India’s 10-Year G-Sec hovered around 7%, firming after a brief stabilization as renewed Middle East tensions lifted oil prices. Brent crude rose about 1% for a third straight session to nearly $97 per barrel after US-Iran diplomatic efforts stalled and fresh regional hostilities heightened concerns. Government bonds remained under pressure as elevated oil prices and a weaker rupee reinforced expectations that the RBI may need to maintain a more hawkish policy stance. Investor attention is now on the RBI's policy decision due Friday. While most economists expect rates to remain unchanged, markets have increasingly started to price in the possibility of future tightening as policymakers grapple with rising inflation risks. Investors are also keeping an eye on substantial debt issuance, with Indian states set to raise INR 241 billion through bond sales and the federal government scheduled to auction INR 340 billion of a new 10-year 2036 bond later this week.

The yield on India’s 10-Year G-Sec hovered near 6.9%, edging lower after the holiday break on easing oil prices and softer US Treasury yields. Bond sentiment was bolstered after reports suggested the US and Iran had agreed to extend their ceasefire arrangement, easing concerns over prolonged disruptions to global crude supply. Brent crude prices have fallen sharply this week, reducing inflationary pressure for oil-importing economies such as India. Meanwhile, US Treasury yields also declined, with the benchmark 10-year yield falling further after softer inflation data reinforced expectations that the Fed may avoid additional aggressive tightening. Still, gains in Indian bonds remained limited as investors stayed cautious ahead of New Delhi’s scheduled debt auction and the RBI’s policy decision next week. Market participants increasingly expect the RBI to keep interest rates unchanged, although some foreign institutions continue to anticipate the possibility of another rate hike.

The yield on India’s 10-Year G-Sec hovered near 7%, as renewed US-Iran tensions pushed oil prices higher and kept investors cautious. Brent crude rebounded toward $98 per barrel following recent US military strikes in southern Iran. Indian bond markets traded in a narrow range, with investors balancing rising oil-related inflation risks against softer US Treasury yields. Traders also remained focused on Friday’s government bond auction, where New Delhi plans to raise INR 280 billion, including through the sale of the 6.68% 2040 bond. Earlier optimism over progress in US-Iran negotiations and easing disruptions in the Strait of Hormuz faded after renewed tensions resurfaced. Analysts at Goldman Sachs have since raised their inflation forecast for fiscal year 2026–27 and now expect two additional RBI rate hikes later this year. Debt markets will be closed on Thursday and will continue trading on May 29 in observance of Eid Al-Adha.