India 10Y Yield Hits One-Week High

The yield on India’s 10-Year G-Sec rose to around 6.73%, reaching one-week highs as renewed Middle East tensions lifted crude oil prices and US Treasury yields, weighing on demand for sovereign debt. Brent crude extended its recent rally after the US launched fresh strikes on Iran and revoked a license allowing Iranian crude sales following attacks on commercial vessels in the Strait of Hormuz, heightening concerns over energy supplies and inflation. Meanwhile, the yield on the 10-year US Treasury note climbed to 4.565%, its highest level in nearly a month, adding upward pressure on Indian yields. Despite the selloff, sentiment remained supported by sustained foreign inflows, with overseas investors purchasing a net INR 362 billion of government securities since the start of June under the Fully Accessible Route. Earlier this week, improved monsoon conditions narrowed the cumulative rainfall deficit to 24% as of July 5 from 43.1% a week earlier, easing inflation concerns.

The yield on India’s 10-year G-Sec hovered around 6.7%, pausing its recent decline after falling to a near four-month low as investors awaited the sale of INR 213.5 billion in state bonds for fresh market direction. The benchmark yield has declined about 37 basis points over the past six weeks, supported by sustained foreign inflows, easing monsoon-related inflation risks, and lower crude oil prices following a 21% drop in Brent crude during June. Overseas investors have bought over INR 351 billion of government bonds in the past month, supported by foreign capital measures and expectations of India's inclusion in Bloomberg's Global Aggregate Index. Meanwhile, improved monsoon conditions narrowed the cumulative rainfall deficit to 24% as of July 5, from 43.1% a week earlier, easing inflation concerns. However, a modest rise in the US 10-year Treasury yield to around 4.50% ahead of the release of the Federal Reserve's June meeting minutes limited further declines in domestic yields.

The yield on India’s 10-year government bond fell to around 6.69%, its lowest level in nearly four months, as stronger US Treasuries, improving monsoon conditions, and sustained foreign inflows boosted demand for sovereign debt. Foreign demand remained a key support, with overseas investors buying a net INR 346 billion of Indian government bonds through the Fully Accessible Route over the five weeks since June 1. The 2036 benchmark attracted INR 102 billion in inflows, while the 2031 bond drew INR 72 billion, together accounting for more than half of total foreign purchases amid expectations of inclusion in the Bloomberg Global Aggregate Index. Lower yields were also supported by improving monsoon rainfall, which eased food inflation concerns, while lower crude oil prices following OPEC+'s production increase further lifted sentiment. Investors also await the minutes of the Federal Reserve's latest policy meeting for fresh interest-rate signals.