India’s 10-year government bond yield declined to 7.40%, retreating from its highest level since March 2023, as softer US Treasury yields and easing crude oil prices improved the outlook for local debt. The moderation in US yields reduced global borrowing costs and helped maintain the relative attractiveness of Indian bonds. At the same time, lower oil prices provided some relief for India’s inflation trajectory and import bill, given the economy’s heavy dependence on imported energy.
Nevertheless, crude prices remained elevated at around USD 114 per barrel, keeping inflation risks pronounced and reinforcing expectations of further rate hikes by the Reserve Bank of India. Ongoing weakness in the rupee could further exacerbate imported inflation, while tight domestic liquidity conditions and sizable government borrowing requirements may cap demand for government securities. As a result, markets continue to factor in significant monetary tightening over the coming 12 months, keeping yields relatively high despite the recent pullback.