India 10Y Yield Extend Gains

The yields on India’s 10-year G-Sec hovered around 7.0%, extending losses for another session as a pullback in crude oil prices eased concerns over imported inflation and the prospect of near-term RBI rate hikes, triggering short-covering after the recent selloff. Brent crude extended its decline after reports of additional Saudi crude cargoes through Oman eased supply concerns, although prices remained above $100 a barrel amid ongoing Middle East tensions. The decline in oil prices also helped ease pressure from expectations of an RBI tightening cycle, with traders widely anticipating a 25-basis-point hike in October. Meanwhile, the RBI’s first INR 50,000 crore OMO sale drew INR 66,590 crore of bids, reflecting strong demand for government debt and helping limit upward pressure on yields despite the central bank accepting bonds at higher-than-prevailing yields. Traders also continued to assess the RBI’s plans to withdraw excess liquidity.

The yield on India’s 10-year G-Sec rose to around 7.1%, reaching near four-month highs as the RBI’s planned INR 1 trillion bond sales, elevated global yields, and growing expectations of further monetary tightening weighed on demand for government debt. The RBI will sell INR 500 billion of bonds on September 16, followed by INR 250 billion each on September 21 and 28, as it seeks to drain surplus liquidity after lenders raised a larger-than-expected $127 billion through its special forex mobilisation scheme. Meanwhile, Brent crude held around $105 a barrel, while the US 10-year Treasury yield climbed above 5% to its highest since 2007, as Middle East supply disruptions heightened inflation concerns. Markets now see a Fed rate hike on Wednesday as almost certain, while India’s August inflation rose to 4.82% from 4.45% in July, its highest since December 2024. The benchmark yield has now risen for four straight weeks.

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. 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. Markets are closed on Monday in observance of Ganesh Chaturthi, trading will resume on September 15.