Source: CRISIL Intelligence Data as on April 27, 2026
The West Asia conflict pushed up domestic bond yields, with
the benchmark 10-year G-sec (6.48% GS 2035) rising 28 bps to 6.95% in April
(from 6.66% in February) and 59 bps on-year. Yields also closed the month of
March at an elevated level 7.02%, the highest since June 2024. G-sec yields
tend to surge during crude price spikes, as typically, a sharp rise in crude
prices adversely impacts India’s macros, including government finances, current
account deficit, inflation and growth. Yields rose in sync with crude prices
this time as well post Feb-end.
Bond market sentiments weakened as the government’s cut excise duties on petrol and diesel in March - to shield consumers from higher prices - was expected to impact government finances. Moreover, surging international fertiliser prices is expected to increase the government’s subsidy bill this fiscal. Globally, higher US Treasury yields and risk-off sentiment led to increased FPI outflows. However, the increased magnitude of RBI’s OMO purchases helped cap the upside.
Brent crude soared 65% to $125.2 and 75% to $132.47 per barrel in March and April respectively due to West Asia conflict-related supply disruptions. The government’s announcement of excise duty cuts for petrol and diesel and the expectations of fertiliser subsidy hikes led to worries about an increasing fiscal burden, adding further pressure on yields.
US Treasury yields hardened, driven by expectations of higher US inflation and tighter monetary policy by the Federal Reserve compared to pre-conflict expectations. Risk-off sentiment amid concerns about the West Asia conflict’s impact on Indian macros drove outflows, while rising advance economy yields contributed. The average spread between the 10-year G-sec benchmark and the 10-year US Treasury yield narrowed to 246 bps in March from 258 bps in February, as the latter saw a greater pick-up in yields.
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