The 10-year government bond yield has climbed nearly 45 basis points since February 27, when it stood at 6.66%, reflecting growing concerns around inflation, elevated crude oil prices and tightening global bond markets.

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The government is scheduled to raise ₹32,000 crore through the auction of three-year, seven-year and 30-year securities later in the day. Market participants remained focused on demand trends in the auction, which could influence short-term yield movement.

A higher yield implies lower bond prices and higher borrowing rates by the government.

The bond market around the world has experienced some sort of stress due to inflation worries amid the heightening of tension in West Asia. Rising crude oil prices have added to concerns around imported inflation and monetary tightening.

Crude Oil, Global Bond Moves Keep Markets Cautious

Brent crude prices continued to trade above $100 per barrel, increasing concerns over fuel-led inflationary pressures. The rise in energy prices has also strengthened expectations in parts of the market that central banks could maintain tighter monetary conditions for longer.

Kunal Sodhani, Head of Treasury at Shinhan Bank, said global bond yields had risen sharply across major economies, including the U.S. and Japan, amid concerns that inflation risks may push central banks toward higher interest rates.

The movement in U.S. Treasury yields has remained an important factor for emerging market debt, including Indian government securities, as higher global yields tend to reduce appetite for riskier assets.

At the same time, domestic markets are also closely watching the Reserve Bank of India’s response to pressure on the rupee.

Rupee Movement Remains In Focus

The rupee opened eight paise lower at 96.28 against the U.S. dollar after ending the previous session at 96.20. The domestic currency had earlier broken an eight-session losing streak following likely intervention by the RBI in the foreign exchange market.

Currency market participants are monitoring whether the central bank continues selling dollars to contain volatility in the rupee. Persistent weakness in the currency can increase imported inflation by raising the cost of crude oil and other imports.

Bond traders were also conservative about the approaching signs about monetary policy stance from the RBI, especially when the price of crude oil was sharply on the rise because of the continuing unrest in West Asia.

Given rising cost of energy, depreciation of the rupee, and high yields across the world, there is now greater uncertainty about the direction of interest rates.