India 10Y Yield Falls as Foreign Inflows Persist

The yield on India’s 10-year G-Sec fell to around 6.75%, retreating from a one-week high as investors bought back government bonds after the previous session’s sharp selloff, with sustained foreign inflows continuing to support demand. Still, sentiment remained cautious as renewed Middle East tensions kept Brent crude near $79 per barrel, while elevated US Treasury yields weighed on fixed-income markets. Expectations of tighter US monetary policy also lingered after the Federal Reserve’s latest meeting minutes highlighted persistent inflation concerns, reinforcing the likelihood of another rate hike later this year. In spite of these pressures, overseas investors remained net buyers of Indian government bonds, purchasing INR 365 billion ($3.82 billion) through the Fully Accessible Route since the start of June, driven by growing expectations that India’s debt will be included in Bloomberg’s Global Aggregate Index.

The yield on India’s 10-Year G-Sec rose to around 6.76%, 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.