India's 10-year government bond yield hits a five-week high as oil prices and war risks overshadow inflation benefits

(1) On Tuesday, India's 10-year government bond yield rose to a five-week high. The benchmark 6.48% 2035 government bond closed at 7.0458%, marking the highest level since April 7 and up 1.4 basis points from Monday's close. The yield on the new 10-year 6.94% 2036 government bond increased by 2 basis points to 7.0033%. Waning hopes for a US-Iran peace agreement and rising oil prices outweighed the impact of April's inflation reading, which was lower than expected.(2) After Trump stated that the ceasefire agreement with Iran was on "life support," hopes for a deal diminished. A senior Iranian Revolutionary Guard Navy official declared that Tehran had expanded the definition of the Strait of Hormuz into a much broader "operational zone" than before the war, heightening concerns over oil supply. Modi called on citizens to conserve fuel and foreign exchange reserves through measures such as working from home and limiting travel. The rupee fell to a historic low of 95.4325.(3) India's retail inflation in April rose to 3.48% year-on-year, lower than the anticipated 3.8%, but still driven by surging food prices. Traders remain alert to the potential inflationary effects of a prolonged Middle East war on India, a net energy importer. The Chief Investment Officer for Fixed Income at Canara Robeco Mutual Fund stated that the inflation trend will depend on how long oil prices remain elevated and the extent to which the impact transmits to domestic consumers.