India 10Y Yield Retreats Ahead of Fed Decision

The yield on India’s 10-year G-Sec hovered around 7.0%, trading in a tight range as lower oil prices offered some support, while the RBI’s liquidity-draining bond sale, elevated US Treasury yields and firmer rate hike expectations capped gains. Brent crude fell 2.3% to around $101.50 a barrel, easing inflation concerns, although traders said a sustained move below $100 would be needed for the 10-year yield to decline meaningfully toward 7%. Meanwhile, the RBI is set to sell INR 250 billion of bonds through an open market operation, its second such sale in a series of measures to withdraw excess liquidity from the banking system. Expectations of a 25-basis-point RBI rate hike on October 7 have also strengthened following the Federal Reserve’s recent move, while the US 10-year Treasury yield remained near 5% after the Fed signalled another hike before year-end.

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.