India's fuel tax cut deepens bond market turmoil. New Delhi slashed petrol excise duty to 3 rupees per litre from 13 rupees and eliminated diesel duty entirely, a move estimated to cost the government 1.5 to 1.6 trillion rupees annually. The decision has rattled bond markets already stressed by surging crude oil prices near 105 dollars per barrel due to Middle East supply disruptions. The benchmark 2035 bond yield jumped to 6.9523 percent, its highest level since July 2024, as investors worry about fiscal deterioration. For India, the world's third-largest oil importer, elevated crude prices threaten to accelerate inflation and widen the current account deficit. Heavy debt supply from state bond sales adds further pressure on yields, creating a perfect storm for fixed income markets during a critical fiscal year-end period.
