Indian government bonds fell early on Wednesday as rising US Treasury yields diminished the attractiveness of emerging-market debt, resulting in capital outflows and putting pressure on the rupee. The benchmark 6.48% 2035 bond yield increased by 1 basis point to 7.1205% by 10:45 AM IST, reflecting the inverse relationship between bond yields and prices.
The 30-year US Treasury yield reached a 19-year high on Tuesday, contributing to a global selloff in long bonds, while the 10-year yield climbed to a 16-month high of 4.6690%. The yield premium on Indian bonds narrowed to 244 basis points, its lowest level in two months.
Indian equities and the rupee also experienced declines as heightened global yields and uncertainty stemming from the Iran conflict led to outflows from emerging markets. The Nifty 50 index dropped by 0.41% to 23,521, while the rupee fell to a record low of 96.96 against the dollar.
Traders indicated that India faces a significant balance of payments deficit this fiscal year, with current projections estimating a deficit exceeding $70 billion in FY27. This is attributed to a widening current account deficit, expected to reach 2.4% of GDP in FY27, coupled with weak net capital inflows, according to a note from Nomura.
Regarding the geopolitical situation, data revealed that two Chinese tankers laden with oil departed the Strait of Hormuz on Wednesday. This development raised hopes for a potential resolution to the US-Israeli conflict with Iran, following positive remarks from the US president and vice president. Meanwhile, Brent crude remained stable at around $111 per barrel in Asian trading. Traders are also anticipating the Reserve Bank of India’s surplus transfer to the government, which could enhance liquidity.
RATES
India’s overnight index swap rates increased in response to US yields. The one-year swap rate remained steady at 6.2650%, while the two-year rate rose by 2.75 basis points to 6.5425%, and the five-year rate increased by 3.25 basis points to 6.8725%.
Published on May 20, 2026
