India 10Y Yield Extend Gains

India's 10-year government bond yield stood at 7.47%, remaining near its highest level since March 2023 as high oil prices and expectations of further monetary tightening weighed on bonds. Brent crude remained elevated despite easing from last week's peak above USD 117 a barrel amid Middle East supply concerns, keeping inflation risks high for India, which imports nearly 90% of its oil needs. Additionally, persistently high energy costs could strain public finances and worsen the country's external balance. At the same time, markets are pricing in slightly more than 100 basis points of rate increases over the next 12 months, with some participants anticipating a 50-basis-point hike in December. Tighter domestic liquidity has also added to selling pressure on government bonds. Investors now await the Federal Reserve's decision on Wednesday for signals on the US rate outlook and global bond yields.

The yield on India’s 10-year G-Sec edged higher to around 7.46%, extending gains for another session as surging oil prices weighed on investor sentiment, while falling U.S. Treasury yields limited the increase. Brent crude climbed above USD 114 a barrel to a five-month high following Houthi attacks on Saudi Arabia, raising concerns over supply disruptions. As India imports nearly 90% of its oil requirements, sustained price increases threaten to widen the import bill, fuel inflation, pressure the rupee, and weaken public finances. Meanwhile, investors remained cautious ahead of a INR 330 billion government debt sale, keeping demand subdued. The benchmark 6.94% 2036 bond yield rose, nearing the 7.50% level. However, U.S. Treasury yields fell below 5% amid weaker economic data, an equity selloff, and concerns over the returns on AI spending and its growth implications.

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.