Indian government bonds are expected to remain stable in early trading on Thursday, as high oil prices and persistent US Treasury yields keep market sentiment cautious. According to a trader from a private bank, the yield on the benchmark 6.48% 2035 bond could fluctuate within a range of 7.02% to 7.08%, following its close at 7.0493% on Wednesday.
“We may not observe significant movements in the early part of the session, given that market sentiment remains cautious with a bearish tendency,” the trader indicated.
US Treasury yields remain elevated, with the 10-year bond yield reaching the notable 4.50% mark for the first time in nearly a year, driven by a steep increase in producer prices—the most substantial gain since early 2022 for the month of April. This development follows a report showing that annual retail inflation surged at its quickest pace in three years, prompting some Federal Reserve officials to caution about possible interest rate hikes if inflationary pressures continue to escalate.
Meanwhile, oil prices have also remained high, partly due to stalled negotiations between the US and Iran. Traders are focusing on an upcoming meeting between US President Donald Trump and Chinese President Xi Jinping for potential insights into resolving ongoing trade tensions.
Additionally, Iran has tightened its grip over the Strait of Hormuz, having entered into agreements with Iraq and Pakistan to transport oil and liquefied natural gas from the area.
India relies on imports for nearly 90% of its crude oil needs, and elevated oil prices could exacerbate inflation, pressure the Indian rupee, widen the current account deficit, and complicate the government’s fiscal strategy. During a recent address, Reserve Bank of India Governor Sanjay Malhotra noted that while the central bank can tolerate temporary supply shocks, it may intervene if inflationary pressures following the spike in oil prices become entrenched.
In terms of rates, India’s overnight index swap rates are anticipated to remain largely unchanged as market participants await developments from the US-China meeting. The one-year swap rate finished at 6.09% on Wednesday, while the two-year swap rate closed at 6.2950%. The five-year overnight indexed swap rate settled at 6.6550%.
Published on May 14, 2026
