Indian bond yield trades near 3-week high on crude spike

Mumbai: Indian government bond yields climbed to nearly a three-week high in afternoon trade on Wednesday, tracking a sharp spike in global crude oil prices amid escalating tensions in the Middle East.

The yield on the benchmark 10-year government security rose to 6.7112 per cent, its highest level since February 20, according to market participants. Traders said the surge in crude prices, particularly Brent crude nearing $85 per barrel in recent sessions, triggered a sell-off in domestic bonds, pushing yields higher. Rising oil prices are seen as inflationary and could widen India's current account deficit, dampening sentiment in the debt market.

"The recent escalation in tensions involving Iran and Israel has pushed crude prices higher and weakened the rupee, which has led to a mild uptick in India's benchmark 10-year government of India bond yield to around 6.71 per cent, a three-week high," said Venkatakrishnan Srinivasan, founder and managing partner of RockfortFincap LLP.

Srinivasan, however added that the move in the bond market has been relatively contained compared with the sharp reaction in equities and currency markets. "This suggests that while global risk factors are influencing sentiment, domestic technical factors are preventing a sharper spike in yields," he said.

Geopolitical risks intensified after a joint military offensive by the US and Israel against Iran over the weekend.

The conflict has since widened, with retaliatory missile and drone attacks reported, escalating fears of a prolonged regional crisis.

Adding to concerns, the Strait of Hormuz, a critical global oil transit chokepoint, has been shut, disrupting supplies. The development is particularly significant for India, as nearly 40 per cent of its energy imports are routed through the passage, raising worries over supply disruptions and imported inflation.