India Bond Yields Rise to 6.94% As Oil Climbs Above $97

Indian government bond prices slipped on 9 April 2026, giving up part of the previous session’s gains, as oil prices moved higher again on doubts over the US-Iran ceasefire.

The yield on the benchmark 6.48% 2035 bond rose about 4 basis points to 6.9407% by 11:15 am. It had dropped sharply to 6.8984% a day earlier, marking its biggest single-session fall in about 4 years.

The reversal comes as crude prices rebounded. Brent crude rose around 2.5% to about $97 per barrel after falling sharply in the previous session. The shift in oil prices has again brought inflation concerns back into focus.

Bond yields and prices move in opposite directions, meaning when yields rise, prices fall. This raises the question: why are oil prices driving this move?

Why Are Oil Prices Driving Bond Yields Higher?

Initial optimism around a two-week ceasefire between the US and Iran had pushed oil prices lower earlier. Brent had fallen nearly 15% to around $92.78 per barrel in the previous session.

That helped bond yields drop, as lower oil prices reduce inflation risks and ease pressure on the rupee.

Sentiment has turned cautious again. Iran has raised doubts over a longer-term deal, while concerns around supply through the Strait of Hormuz remain.

Crude has moved back towards $97 per barrel. This has brought inflation risks back into focus. Higher oil prices increase import costs, which can add to inflation and reduce demand for bonds, which in turn pushes yields higher.

What Role Are The RBI And Liquidity Playing?

The Reserve Bank of India has, for now, left rates unchanged at 5.25%. It is watching how global developments unfold.

At the same time, the central bank has highlighted risks from rising crude prices. These include pressure on inflation and possible shortages of key inputs like gas.

Liquidity, however, remains supportive. The banking system is currently in surplus, with excess liquidity of about ₹4.57 trillion, the highest in four years.

Market participants expect the central bank to hold rates steady in the near term. Some analysts see a pause continuing for the next couple of policy meetings.

Even with supportive liquidity, higher oil prices are capping any sharp fall in yields.

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What Other Factors Are Impacting Bond Markets?

The supply is also in focus. The government plans to sell ₹34,000 crore worth of bonds, including the 10-year paper, adding more supply to the market. This comes at a time when demand remains cautious.

Swap markets have also reacted. Overnight index swap (OIS) rates moved higher after falling sharply in the previous session. The one-year and two-year OIS rates rose to around 5.89% and 6.07%, while the five-year rate moved up to about 6.40%.

Any clarity on the US-Iran situation and shipping flows through the Strait of Hormuz will influence crude prices and, in turn, bond yields. For now, the bond market appears to be balancing supportive liquidity against rising global risks.

Sources:

The Economic Times

Moneycontrol

Business Today