India 10Y Yields Fall on State Bond Demand

The yield on India’s 10-year G-Sec hovered around 6.77%, extending losses for a third consecutive session as lower crude oil prices and declining US Treasury yields boosted demand for sovereign debt. Investor sentiment improved after Brent crude fell 2% to $86.52 per barrel, as hopes for a diplomatic resolution to the US-Iran conflict eased supply concerns. Meanwhile, the US 10-year Treasury yield slipped to 4.63% ahead of the Federal Reserve's policy decision, where rates are expected to remain unchanged despite markets pricing in a high probability of a 25-basis-point hike in September. Traders also monitored the INR 181 billion state bond auction for demand signals, while offshore investors bought INR 4.83 billion of government debt under the Fully Accessible Route. However, further yield declines were capped by profit-taking from state-run banks, which sold INR 33.7 billion of bonds in the previous session.

The yield on India’s 10-year G-Sec hovered around 6.82%, edging lower after recent gains as investors cautiously bought bonds ahead of the government’s INR 280 billion debt auction, including a new 15-year security. However, declines were limited as investors remained wary of rising inflation risks after Brent crude surged more than 7% above $100 per barrel for the first time since May following attacks on Saudi oil tankers in the Red Sea. Higher US Treasury yields also weighed on sentiment, with the benchmark 10-year yield climbing to around 4.70%, its highest since January 2025. Investors also assessed fresh US tariffs of 10% to 12.5% on imports from around 60 economies, including a 10% duty on Indian goods, for their impact on global trade and risk sentiment. Meanwhile, flash PMI data signaled slower growth, with manufacturing PMI easing to 53.9, services PMI dropping to 53.1, and the composite PMI falling to 54.3, its lowest since March 2022.

The yield on India’s 10-year G-Sec rose to around 6.84%, extending gains after reaching four-week highs as escalating tensions in the Middle East drove crude oil prices higher and lifted US Treasury yields, reducing demand for sovereign debt. Brent crude climbed for a fifth consecutive session above $96 per barrel after the US launched a new round of strikes on Iran, marking its 12th consecutive night of attacks, while Yemen's Houthis targeted oil tankers in the Red Sea, raising concerns over further disruptions to global energy supplies. For India, which imports nearly 90% of its crude oil needs, higher energy costs threaten to lift inflation, widen the current account deficit, and pressure the rupee, pushing bond yields higher. Investors also monitored foreign demand for Indian debt, with overseas investors having purchased about $4.5 billion of government bonds over June and July, although analysts warned persistent pressure on the rupee could dampen those inflows.