Government Bond Yield Falls to 7.029% as Gold, Silver Import Duties Rise to 15%

The benchmark 10-year government bond yield eased around two basis points to 7.029% on May 13 after closing at 7.04% in the previous session, as markets reacted to the government’s decision to raise import duties on gold and silver, even as elevated crude oil prices kept sentiment cautious.

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The movement came amid mixed global and domestic signals, with fiscal and inflation-linked factors influencing bond market direction.

Gold and Silver Tariff Hike Supports Rupee

Late on May 12, the government raised import duties on gold and silver to 15% from 6% in a move aimed at curbing demand for precious metals and reducing pressure on foreign exchange reserves.

The revised structure includes a 10% basic customs duty and a 5% Agriculture Infrastructure and Development Cess (AIDC), taking the total import tax to 15%.

The policy shift came shortly after Prime Minister Narendra Modi urged citizens to reduce gold purchases for a year. The announcement also provided support to the rupee, which opened 2 paise higher at 95.61 against the U.S. dollar on May 13, compared with the previous close of 95.63.

Brent Crude Remains Key Risk Factor

Despite the easing in bond yields, market participants remained focused on Brent crude oil, which hovered near $106 per barrel even after an overnight pause in the recent rally.

Global energy supply concerns persist and continue to weigh on sentiment, with geopolitical tensions between the United States and Iran adding pressure and increasing fears of extended disruption across global supply chains.

Maritime movement via the Strait of Hormuz, a vital energy passage responsible for almost 20% of worldwide oil and gas flows before the conflict, remains heavily limited, increasing uncertainty around the energy outlook conditions remain. 

For India, which imports about 85% of its energy requirements, sustained high crude oil prices pose a key

inflation risk and also influence government bond yields.
Inflation and Global Interest Rate Outlook

On the domestic front, retail inflation rose to 3.48% in April from 3.4% in March, according to official data released after market hours on May 12. 

Globally, inflation trends also remain elevated. U.S. headline inflation climbed to 3.8% in April, the highest since May 2023, weakening expectations of near-term interest rate cuts by the U.S. Federal Reserve. 

Outlook for Government Bond Market

Overall, the domestic bond market is navigating a complex mix of supportive and restrictive factors. While higher import duties on gold and silver have provided some stability to the rupee and eased immediate pressure on yields.