Indian government bond yields experienced a significant surge throughout April, with the benchmark 10-year G-Sec yield closing at 7.0148% on Thursday, slightly higher than 6.9928% in the previous session. According to Livemint, the yield moved in a broad range of 6.8648% to 7.1421% during April, compared to its March-end level of 7.0345%. The benchmark yield had retreated to a relative softness of around 6.86% mid-April before the latest surge. Money market rates also climbed sharply, with the weighted average call rate trading at 5.07% on Thursday versus 5.00% a week earlier, indicating tighter global financial conditions amid shrinking banking liquidity. India's overnight index swap (OIS) rates rose sharply in the latter half of April after declining earlier, though they still ended the month lower overall, reflecting the central bank's accommodative signals.
Oil prices continued their relentless upward march throughout April, with Brent crude climbing above $126 per barrel during the week, hitting levels last seen in March 2022 following the Russia-Ukraine war. As reported by Livemint, crude oil prices stayed above $100 per barrel for most of the month, amid persistent geopolitical tensions. Although the United States initially announced a two-week ceasefire with Iran on April 7 — later extended indefinitely, uncertainty continued to weigh on energy markets. Adding to concerns, Iran has largely shut the Strait of Hormuz, a critical chokepoint that carries roughly one-fifth of global energy supplies. The benchmark Brent crude contract has climbed 70% since the war began on February 28 to its highest level in nearly four years, on concerns that supply from the key Middle East producing region will remain bottled up for longer.
Indian equity markets witnessed significant selling pressure throughout April, with the Sensex dropping 416.72 points or 0.54% to 76,886.91 and the Nifty 50 falling 97 points or 0.40% to 23,995.70. According to ICICI Direct, the Nifty slipped below the crucial 24,000 mark, dragged down by heavy selling in banking and auto stocks. Axis Bank declined 2.65%, ICICI Bank fell 1.77%, and HDFC Bank dropped 0.96%, emerging as major index drags. The broader market also reflected weakness, with the BSE 150 MidCap Index falling 0.04% and the BSE 250 SmallCap Index shedding 0.05%. Market breadth remained negative, with 1,998 shares rising and 2,257 shares falling on the BSE, while the NSE India VIX declined 1.79% to 18.05, indicating reduced volatility expectations. The Indian rupee also hit a record low during the week, adding to external pressure on bond markets.
The surge in bond yields was significantly influenced by hawkish comments from the Federal Reserve, which reinforced expectations of tighter global financial conditions. As reported by Livemint, this followed the US Federal Reserve's most divided rate decision since 1992, which dampened expectations of near-term rate cuts as rising energy prices heightened inflation concerns. The Federal Reserve's decision to keep rates unchanged was its most divided since 1992, with three of 12 policymakers dissenting and stating that the Fed should not show a bias towards easing. This divided stance has created uncertainty in global markets and contributed to the broader selloff in risk assets, with global bond markets also facing pressure, with the 10-year US Treasury yield rising to a five-week high during the month.
For oil-import-dependent India, the Reserve Bank of India has warned that a 10% rise in oil prices above $85 could raise inflation by 50 basis points and cut growth by 15 basis points. As reported by Livemint, the RBI maintained status quo on policy rates and stance earlier in April, while reiterating its commitment to ensuring adequate liquidity in the banking system. India's overnight index swap (OIS) rates showed significant movements, with the one-year rate ending at 5.9950%, the two-year swap rate closing at 6.23%, and the five-year OIS rate settling at 6.61%, according to Reuters. India's overnight index swap rates surged sharply later in the month, after a dip in the first half, but still ended lower for this month on the central bank's assurance. The combination of geopolitical tensions and supply disruptions has created a challenging environment for bond markets, with sustained foreign fund outflows further battering investor sentiment.
