Indian government bonds retreated on Monday as escalating geopolitical risks in the Middle East drove oil prices higher, reigniting inflation concerns that overshadowed positive sentiment around potential global index inclusion.
The benchmark 6.94% 2036 note saw its yield settle at 6.7309%, up from 6.7139% on Friday, marking a reversal of the recent stability in the debt market.
This move signals that traders are prioritizing immediate supply-side inflation risks over longer-term structural benefits from foreign capital inflows.
The sell-off in Indian debt comes amid a broader risk-off environment triggered by renewed U.S.-Iran tensions.
As oil prices climb, the transmission mechanism to domestic inflation in India—a major crude importer—remains a critical concern for the Reserve Bank of India.
Investors are increasingly wary that persistent energy cost pressures could delay anticipated rate cuts or force a more hawkish stance, thereby keeping bond yields elevated.