India 10Y Yield Nears 4-Week High

The yield on India’s 10-year G-Sec rose to around 6.83%, reaching near four-week highs as demand for sovereign debt weakened after escalating tensions between the United States and Iran drove oil prices higher. Investor sentiment deteriorated after the US completed an eighth consecutive night of strikes on Iran over the weekend, with both sides intensifying attacks following the collapse of an interim ceasefire. The conflict has also choked the Strait of Hormuz, pushing Brent crude above $90 per barrel and heightening concerns over supply disruptions and imported inflation for major oil importers such as India. Meanwhile, investors remained cautious ahead of a decision on the potential inclusion of Indian government bonds in the Bloomberg Global Aggregate Index, which could attract additional foreign inflows. Foreign investors have already net bought more than $4.3 billion of Indian bonds since June 1 under the Fully Accessible Route.

The yields on India’s 10-Year G-Sec hovered around 6.75%, steadying after falling in the previous session as investors awaited the auction of INR 320 billion worth of three- and 30-year government bonds. Yields found support from relatively stable crude oil prices near $85 per barrel and softer US Treasury yields, which eased external pressure despite renewed geopolitical tensions in the Middle East. Demand for Indian sovereign debt also remained resilient despite higher-than-expected domestic inflation, rupee weakness, and escalating geopolitical tensions. Overseas investors purchased about INR 16.5 billion of bonds under the Fully Accessible Route this week amid expectations of India's inclusion in the Bloomberg bond index, while foreign banks turned net buyers on Thursday, acquiring more than INR 50 billion of government bonds after a three-session selling streak, supporting sentiment ahead of the debt sale.

The yield on India’s 10-year G-Sec fell to around 6.74%, extending losses for a second session as softer US economic data strengthened expectations that the Federal Reserve will delay further interest rate hikes. The benchmark yield has fallen about 5 basis points over the past two sessions after reaching a three-week high earlier this week. Lower crude oil prices supported bonds, with Brent easing below $85 per barrel despite ongoing Middle East tensions, reducing concerns over imported inflation. Expectations of further domestic policy tightening also eased, with economists projecting India's inflation to slow to 4.0% in July from 4.4% in June, reinforcing views that the Reserve Bank of India will keep interest rates unchanged. Additional downward pressure on yields came from strong demand, as state-run banks bought INR 156 billion of government bonds over the past three sessions, while foreign investors purchased more than $4.2 billion of Fully Accessible Route bonds since June 1.