Indian government bonds slumped on Wednesday as a persistent spike ​in oil prices fuelled inflation concerns and added to worries ‌of further rate hikes, ahead of the minutes of ​the central bank's latest policy meeting.

The benchmark 6.94% ⁠2036 bond yield was at 7.4352% as of 10 a.m. IST, after ending at 7.3920% on Monday. Indian debt markets were shut ‌on Tuesday for a local holiday.

The yield had risen to 7.4397% earlier in the session, ‌its highest level since March 9, 2023.

"Oil is driving ‌the ⁠market right now, and it is difficult ⁠to see any large conviction-led buying till the picture becomes clearer," a trader with a primary dealership said.

The benchmark Brent crude came within a ​whisker of $112 a barrel on ‌Tuesday, its highest in five months, and prices stayed elevated through Asian hours as traders weighed Red Sea shipping risks and threats to Saudi oil infrastructure.

India imports ‌nearly 90% of its crude and is especially exposed ​to supply shocks. Persistently high energy prices threaten to push up inflation, weigh on the ⁠rupee and strain government finances.

India's September consumer inflation accelerated to 5.54%, and is on track to cross the upper end ‌of the central bank's tolerance band in October, according to economists.

The Reserve Bank of India raised its key policy rate and changed stance to "calibrated tightening" at its monetary policy meet earlier this month.

Traders will scan the minutes of that meeting, due after market hours on Wednesday, for clues ‌on the RBI's assessment of oil-driven inflation and how fast it ​plans to raise rates.

Swap markets are pricing in about 100 basis points of rate hikes over ⁠the next 12 months, including bets of a 50-bp ⁠move by the central bank's December meeting.

India's overnight indexed swap (OIS) rates rose in line with oil prices and ‌Treasury yields.

The 1-year OIS rate was at 6.58%, while the 2-year rate rose to 6.66% and the ​liquid 5-year rate moved to 6.84%.

Published on October 21, 2026