India 10Y Yield Rises to 16-Month High

The yield on India’s 10-year G-Sec rose to around 6.84%, extending gains to reach a sixteen-month high as surging oil prices and rising US Treasury yields spurred selling pressure. Indian government bonds weakened amid elevated crude prices driven by escalating tensions in the Middle East, alongside a sharp increase in US yields, with the 10-year Treasury climbing above 4.40% for the first time in nearly eight months. Higher oil prices pose a significant risk for India, the world’s third-largest crude importer, as they threaten to fuel inflation and widen the current account deficit. At the same time, the market is grappling with heavy debt supply, with Indian states set to raise substantial funds through bond sales, potentially pushing issuance to record levels for the quarter. The rupee’s slide to record lows has added to the pressure, heightening concerns over capital flows and contributing to the rise in yields.

The yields on India’s 10-year G-Sec rose to around 6.77%, its highest in five weeks, as investors reassessed the impact of volatile oil prices on inflation, growth, and monetary policy. Government bonds extended losses for a sixth consecutive session as markets priced in the risk that persistently high crude prices could lead to tighter policy conditions. Brent crude, which has fluctuated amid geopolitical tensions, hovered around $107 per barrel, above policymakers’ comfort levels. At the same time, funding pressures in the banking system have pushed lenders toward market borrowing, with weak deposit growth and higher bulk deposit rates straining traditional funding sources. Indian Bank is among those tapping the market, planning to raise over $500 million through seven-year infrastructure bonds. Meanwhile, the rupee weakened past 93 per dollar to a fresh low, reflecting concerns over a widening current account deficit and continued global risk pressures.

The yield on India’s 10-year G-Sec edged down to around 6.7%, retreating from earlier gains as investors weighed easing oil prices and awaited the US Federal Reserve’s policy decision. Brent crude held above $100 per barrel amid ongoing Middle East tensions but has stabilized in recent sessions, providing some relief to bond markets. Adding to the downward pressure, US Treasury yields fell for the third consecutive day as investors widely expect the Federal Reserve to keep interest rates unchanged. On the local front, traders also monitored the RBI’s auction of 340 billion rupees in 91-, 182-, and 364-day treasury bills. While long-term yields eased, tightening liquidity, with the banking system surplus falling to roughly 820 billion rupees from a mid-March average of 2.5 trillion, continues to support upward pressure on short-term rates. The debt market is closed on Thursday, March 19, and trading will resume on Friday.