India 10Y Yield Nears 10-Month High Ahead of Debt Auction

The yield on India’s 10-year G-Sec rose to around 7%, reaching more than three-month highs as surging crude oil prices, higher US Treasury yields and growing expectations of global monetary tightening triggered a broad bond selloff. Brent crude climbed above $100 a barrel to around $108 as escalating Middle East tensions disrupted energy supplies and shipping through the Strait of Hormuz and Red Sea, raising inflation concerns for India. Meanwhile, US Treasury yields rose after producer price inflation strengthened expectations of a Federal Reserve rate hike next week, with markets pricing a 72% chance of a 25-basis-point increase and the 10-year yield nearing 5%. German and Japanese 10-year yields also climbed to multi-year highs, reinforcing the global bond selloff. Domestic bonds faced additional pressure from expectations of RBI liquidity withdrawal, with banking system liquidity exceeding INR 10 trillion.

The yield on India’s 10-year G-Sec inched up to 6.96%, extending gains for a second straight session as rising crude oil prices and elevated US Treasury yields heightened inflation concerns and weighed on Indian bonds. Brent crude held above $100 a barrel amid escalating tensions around the Strait of Hormuz, raising concerns over India’s import bill, fiscal position, and inflation outlook. Meanwhile, the US 10-year Treasury yield remained elevated near 4.84%, close to its highest level since 2023, adding to pressure on domestic debt. The rupee also weakened for a fifth consecutive session to 95.16 per dollar, reinforcing imported inflation risks. However, an INR 10.49 trillion banking-system liquidity surplus helped cushion the selloff and limited the rise in yields. Investors are now focused on US and Indian inflation data and the Federal Reserve’s policy decision next week for further cues.

The yield on India’s 10-year G-Sec rose to around 6.97%, hovering near three-month highs as surplus liquidity and expectations of further RBI cash-draining measures weighed on sentiment. Banking-system liquidity swelled to a record INR 10.73 trillion, prompting the RBI to step up efforts to absorb excess funds after weak demand for its INR 7 trillion 30-day variable-rate reverse repo auction. The central bank received INR 2.59 trillion in bids and followed it with an additional INR 5 trillion overnight operation. Meanwhile, rising oil prices and elevated US Treasury yields added to pressure on Indian bonds, with Brent crude trading near $97 a barrel. The benchmark 6.94% 2036 bond yield ended at 6.9625% on Friday, up 5 basis points for the week, marking a third consecutive weekly increase. The weak auction response also raised concerns that the RBI may need to adopt more aggressive measures to sterilize the excess liquidity.