10-Year Bond Yield Rises 3 bps As Crude Crosses $110

India’s benchmark 10-year government bond yield climbed 3 basis points to 7.0758% on April 7, reversing early gains as rising crude oil prices and global tensions weighed on sentiment.

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The yield increased from 7.0458% in the previous session, reflecting caution among market participants as Brent crude traded above $110 per barrel. According to Reuters, Brent crude was at $111 per barrel, up 1.4% from the previous session, with prices rising nearly 50% since February 28 following the escalation of the West Asia conflict.

Oil Prices Drive Yield Movement

Higher crude oil prices have brought about fears of higher inflation, which in turn affects bond yields. Higher costs in energy can result in higher inflation expectations, resulting in high yields in the sovereign bonds space.

In this context, the yield on the 10-year note has already climbed by more than 30 basis points since the beginning of the conflict due to the rise in global oil prices.

The geopolitical situation continues to be volatile given that the US is giving Iran an early deadline until April 8 to reopen the Strait of Hormuz, an essential global energy channel. Due to the ongoing turmoil, the supply of oil has been restricted while sustaining high crude oil prices.

RBI Policy And Bond Supply In The Spotlight

Investors remain attentive to the results of the MPC’s next meeting on April 8. According to Reuters, the central bank is expected to keep the policy rate unchanged, while announcements on liquidity, inflation, and growth projections will be monitored.

On the supply side, the government is set to auction ₹34,000 crore worth of benchmark 10-year bonds on April 7. In addition, state governments plan to raise ₹18,159 crore through their own debt issuances, adding to the overall supply in the market.

Currency Movement

In the currency market, the rupee strengthened by 6 paise to trade at 93 against the U.S. dollar after closing at 93.06 in the previous session. The movement was supported by banks unwinding arbitrage positions in the non-deliverable forwards (NDF) market ahead of the Reserve Bank of India’s April 10 deadline for compliance with net open position norms.

The rupee has traded within a narrow range of about 30 paise in recent sessions following volatility last week.

Yields on bonds still appear to be responsive to fluctuations in the price of crude oil, as well as any policy statements, given that both domestic and external forces continue to have a bearing on market performance.