India 10Y Yield Retreats Ahead of Fed Decision

The yield on India’s 10-Year G-Sec hovered near 7%, as renewed US-Iran tensions pushed oil prices higher and kept investors cautious. Brent crude rebounded toward $98 per barrel following recent US military strikes in southern Iran. Indian bond markets traded in a narrow range, with investors balancing rising oil-related inflation risks against softer US Treasury yields. Traders also remained focused on Friday’s government bond auction, where New Delhi plans to raise INR 280 billion, including through the sale of the 6.68% 2040 bond. Earlier optimism over progress in US-Iran negotiations and easing disruptions in the Strait of Hormuz faded after renewed tensions resurfaced. Analysts at Goldman Sachs have since raised their inflation forecast for fiscal year 2026–27 and now expect two additional RBI rate hikes later this year. Debt markets will be closed on Thursday and will continue trading on May 29 in observance of Eid Al-Adha.

The yield on India’s 10-Year G-Sec hovered near 7%, pausing its advance after four straight sessions as investors balanced fresh debt supply against expectations of policy tightening and improving liquidity conditions. Market sentiment remained cautious ahead of the government’s planned bond auction, where New Delhi is set to raise billions of rupees through the sale of three-year, seven-year, and 30-year securities. Despite rising market expectations for interest rate hikes, the Reserve Bank of India is reportedly reluctant to use tighter borrowing costs to defend the rupee, keeping bond trading volatile amid diverging policy expectations. Meanwhile, expectations of a record surplus transfer from the RBI to the government provided support to the debt market and helped limit upward pressure on yields. Economists estimate the payout could exceed 3 trillion rupees, driven largely by gains from dollar sales conducted to stabilize the currency.

The yield on India’s 10-year G-Sec hovered around 7.1%, extending gains for a fourth consecutive session as markets priced in tighter domestic policy expectations. Sentiment was driven primarily by reports that the Reserve Bank of India is weighing all options to support the rupee, including a possible rate hike, additional currency swap operations, and steps to attract overseas dollar inflows. The rupee’s slide toward 97 per dollar has intensified internal RBI discussions, keeping policy tightening in focus ahead of the June 3–5 monetary policy meeting. Additional support came from a rise in US Treasury yields, with the 10-year note edging up to around 4.59% as markets tracked firmer oil prices and Fed minutes that reinforced a cautious but still inflation-sensitive stance, keeping expectations of potential future tightening in play.