India 10-Year Yield Set to Fall for 3 Straight Years

The yield on India’s 10-year G-Sec hovered near 6.87%, remaining close to two-month highs as subdued oil prices eased concerns over inflationary pressure from potential supply disruptions following fresh US sanctions on Iran. Brent crude fell around 2% overnight and extended losses to near $91.27 per barrel as markets largely shrugged off the sanctions. Meanwhile, the 10-year US Treasury yield held around 4.7% as investors assessed the Treasury’s expanded debt buyback program, including reports that purchases could be funded from its cash balance rather than fresh debt issuance. However, domestic bond sentiment remained cautious after the RBI’s latest policy minutes indicated that a rate hike could be considered later in the fiscal year. Traders also awaited a state debt sale and Friday’s benchmark bond auction for further direction.

The yield on India’s 10-year G-Sec rose to around 6.85%, rebounding to an eight-week high as hawkish RBI policy minutes strengthened expectations of an earlier rate hike. Yields climbed as traders reassessed bets on an extended rate hold following the Aug. 3-5 meeting minutes, which highlighted growing inflation risks. RBI Deputy Governor Poonam Gupta said there was no scope for further policy easing and that a case for a rate hike may emerge during the fiscal year, while Governor Sanjay Malhotra warned that broader food, fuel and input price pressures could require tighter policy. The benchmark 6.94% 2036 bond yield rose 4 basis points to 6.86%, while five-year yields climbed as much as 8 basis points. Higher Brent crude near $92 per barrel also lifted inflation concerns, as stalled US-Iran peace efforts and tensions around the Strait of Hormuz raised concerns about supply disruptions.

The yield on India’s 10-year G-Sec weakened to around 6.8%, retreating from recent gains as easing US Treasury yields and bargain buying after a two-day selloff supported demand for government bonds. The US 10-year Treasury yield eased to 4.686%, offering some relief to Indian debt, while foreign investors continued to show demand, buying $3.04 billion of Indian bonds in July, their second consecutive monthly inflow after India scrapped capital gains tax on interest and sales of government securities for overseas investors. The decline in yields was limited by elevated oil prices and renewed geopolitical risks, with Brent crude rising to around $92 a barrel as uncertainty over the Strait of Hormuz persisted. The benchmark bond yield had climbed to a two-week high on Tuesday following the RBI’s early withdrawal of its discounted forex swap facility for banks hedging diaspora deposits. Investors were also awaiting the RBI’s policy minutes for fresh interest-rate cues.