Indian 10-Year Yield Rises Further

The yield on the Indian 10-year G-Sec rose toward the 6.4% threshold in August as heightening trade tensions with the US and the consequent plunge for the rupee hurt demand on domestic assets.

US President Trump imposed tariffs of 25% on India and threatened more penalties if India continues receiving and re-exporting Russian energy goods.

Risks of lower growth were magnified by signals from PM Modi that Indian refineries will continue to do business with suppliers that offer the most favorable inputs, increasing the likelihood of trade war.

The events drove the rupee to plunge to record lows, countering the recent optimism on the Indian budget balance and driving foreign investors to trim their positions in Indian fixed income.

Meanwhile, the RBI held rates unchanged in August as expected, but the bank is expected to deliver another rate cut this year.

Headline inflation fell to a six-year low of 2.1% in June, approaching the lower end of the RBI's inflation tolerance band of 2%.