India 10Y Yield Rises Amid Middle East Tensions

The yields on India’s 10-year G-Sec rose to 6.7%, marking a one-week high, as global geopolitical tensions weighed on investor sentiment. Markets reacted sharply after joint US-Israeli strikes in Iran reportedly killed Supreme Leader Ayatollah Ali Khamenei, prompting concerns about retaliatory action and broader instability. The uptick in yields has also been influenced by offshore activity in non-deliverable overnight index swaps. Last week, the most liquid one-year, two-year, and five-year swaps saw strong receiving interest. Meanwhile, investors digested a positive domestic signal as India’s Manufacturing PMI climbed to 56.9 in February, up from 55.4 in January and marking a four-month high, reflecting a notable improvement in operating conditions and underlying business activity.

The yield on India’s 10-year G-Sec rose to around 6.7%, reversing earlier losses, as the market awaited upcoming debt issuance. Attention now turns to supply dynamics, with New Delhi scheduled to sell INR 320 billion of the benchmark 2035 bond on Friday, the final auction of the note for the current fiscal year. The level of demand and the cut-off yield at the auction are expected to set the tone for bond market direction in March. The rise in yields, however, was limited by broader market sentiment, supported by sustained interest in longer-dated securities. Ultra-long bonds, particularly the 30-year and 40-year papers, have seen continued buying from long-term investors, including insurance companies, amid increased inflows in recent weeks. So far this financial year, yields on 30-year and 40-year securities have risen by roughly 45 basis points, compared with a more modest 10-basis-point increase in the 10-year benchmark.

The yield on India’s 10-year G-Sec fell to around 6.67%, retreating from an over one-week high in the previous session, as bond prices firmed on stronger-than-expected demand for state government debt. A recent state bond auction drew robust investor interest, with total issuance exceeding the planned amount and most cutoff yields coming in below market expectations, signaling solid appetite for longer-duration paper. On the other hand, state governments are set to raise about INR 445 billion this week, alongside an INR 320 billion auction of the benchmark 10-year bond, keeping upward pressure on the market. Persistent issuance overhang has reinforced expectations that yields will struggle to move materially lower. Yields remain sensitive to global developments and oil market pressures, which continue to influence sentiment. Looking ahead, traders expect the benchmark to remain within a 6.65%–6.78% range, with upcoming auctions and demand absorption key to direction.