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

The yield on India’s 10-year G-Sec rose to 7.45%, reaching its highest level since March 2023, as minutes from the Reserve Bank of India’s latest monetary policy meeting reinforced expectations of further interest rate hikes to curb inflation. Policymakers flagged increasing signs of broadening price pressures amid elevated crude oil prices and rising food costs following deficient monsoon rainfall, with September retail inflation accelerating to 5.54%, nearing the RBI’s 6% tolerance ceiling. Markets have priced in slightly more than 100 basis points of rate hikes over the next 12 months, although policymakers cautioned that overly aggressive tightening could weigh on economic growth. Brent crude remained above $110 a barrel amid escalating Middle East tensions, adding to inflation concerns and keeping yields elevated. The persistent bond selloff following the RBI’s recent 25-basis-point repo rate hike to 5.50% and shift to a “calibrated tightening” stance further dampened demand.

The yield on India’s 10-year G-Sec fell to around 7.36%, extending losses for another session as a sharp decline in US Treasury yields spurred value buying, offsetting inflation concerns from elevated crude oil prices. Indian yields tracked the US 10-year Treasury yield’s decline to around 5.05% amid expectations that the Federal Reserve may delay its next rate hike until December. Easing oil prices following a potential improvement in Russian supply also supported Indian yields. However, upside inflation risks persist, with September consumer inflation accelerating to 5.54% and potentially exceeding the RBI’s 6% upper tolerance limit in October. Meanwhile, expectations of further RBI tightening, growing bets on a 50-basis-point rate hike in December, and tighter banking-system liquidity continue to weigh on sentiment. Markets are closed on Tuesday in observance of Dussehra and will resume on October 21.

The yield on India’s 10-year G-Sec hovered around 7.38%, easing marginally from three-year highs as investors weighed global bond market support against persistent domestic inflation and rate-hike concerns. The government’s INR 340 billion bond auction scheduled for Friday is expected to add selling pressure, with total issuance of the benchmark 6.94% 2036 paper reaching INR 2.38 trillion. September inflation accelerated to 5.54%, raising expectations of a December rate hike, while tighter RBI cash reserve ratio (CRR) requirements took effect on Friday, requiring banks to maintain 99% of their CRR daily, up from 90%, potentially tightening liquidity. The one-year overnight indexed swap rate rose 10.5 basis points to 6.5450%, while the two-year rate gained 4.5 basis points to 6.64%, reflecting persistent hawkish policy expectations.