Indian Bond Market

Bond yields had risen sharply in March since the onset of the US–Iran war, with the benchmark 10-year yield touching a high of 7.13%. However, yields softened across the curve yesterday, amid optimism over the US-Iran ceasefire, alongside a broadly reassuring policy stance from the central bank.

The benchmark 6.48% 2035 bond yield rose about 4 bps to 7.0734%, its highest level since May 21, 2024. Notably, benchmark yields have increased by 37 bps in March and 45 bps in FY26, despite 100 bps of rate cuts by the Reserve Bank of India (RBI).

The uptick in bond prices followed a sharp decline in crude oil prices, which helped ease inflationary concerns. The benchmark Brent crude contract was nearly 5% lower at $99.60 per barrel, after falling to an intraday low of $97.15.

Bond yields move inversely to prices, and recent developments in the bond market have led to a sustained upward movement in yields. Meanwhile, the Indian rupee weakened to a fresh record low of 93.94 against the US dollar.

Bond markets are expected to be stable amid the crude oil shock as the RBI and government will work together to minimise the impact by keeping easy liquidity and tapping into their strategic oil reserve, opine experts.

Bank of India could raise up to 100 billion rupees ($1.09 billion), while PNB will consider a 20-50 billion-rupee issue, the sources added, requesting anonymity as they're not authorised to speak to the media.

After an extended easing phase over the past year, the RBI has chosen to pause and hold the policy repo rate steady.

The RBI's latest policy disappointed bond markets despite maintaining interest rates. Investors were expecting liquidity measures, leading to a slight rise in bond yields. However, experts remain optimistic about the medium- to long-term outlook for bonds due to stable inflation and growth.

A well-constructed accrual-oriented portfolio that blends high-quality core holdings with measured doses of high-yield credit can potentially deliver superior risk-adjusted returns even in a flat yield environment.

Though the announcement of the deal has reduced external uncertainty, Pandey said foreign investors may also look at the risk-return dynamic in Indian capital markets before deciding whether to re-enter.