India 10Y Yield Hits 12-Week High

The yield on India’s 10-year G-Sec rose to around 7.21%, reaching more than two-year highs as elevated US Treasury yields and expectations of a tighter RBI policy weighed on sentiment ahead of next week’s policy decision. The benchmark 6.94% 2036 bond yield closed at 7.19% on Wednesday, a two-and-a-half-year high, after rising 24 bps in September and 44 bps in the third quarter. The US 10-year Treasury yield climbed to 5.30%, its highest since 2007, while traders remained cautious ahead of an INR 330 billion debt sale. Meanwhile, markets are pricing in nearly 100 bps of RBI tightening over the next 12 months, with the one-year overnight indexed swap rate rising 21 bps in September to 6.21%. The RBI’s efforts to drain surplus liquidity following record $133 billion FCNR(B) inflows have further pressured yields, while the government’s plan to borrow nearly INR 8 trillion through March adds to supply concerns. Debt markets will be closed on Friday, with trading resuming on October 5.

The yield on India’s 10-year G-Sec fell to around 7.15%, retreating from more than two-year highs as softer crude prices and reduced expectations of another US Federal Reserve rate hike eased pressure on yields. Crude prices retreated from recent highs as energy flows from West Asia showed signs of normalising, although Brent remained above $100 a barrel. The decline in yields came despite persistent concerns over elevated global yields and oil prices, which have driven a risk-off move in emerging-market debt and contributed to INR 102 billion ($1.06 billion) of foreign outflows from India’s FAR-eligible bonds so far in September, the biggest monthly outflow of FY27. Rising expectations of RBI tightening have also weighed on demand for Indian government bonds.

The yield on India’s 10-year G-Sec rose to around 7.18%, reaching its highest level in nearly two years, as elevated US Treasury yields and expectations of further rate hikes kept pressure on Indian yields. The US 10-year yield hovered near 5.2%, its highest level in nearly two decades, as stronger economic data and hawkish Fed signals lifted bets on further rate increases. Expectations of an RBI hike next week have also strengthened following August inflation of 4.82% and the Fed’s recent move. However, a reduction in planned five-year and 10-year bond issuance for October-March could offer some relief after the recent selloff. The government plans to borrow INR 7.86 trillion during the period, with the share of 5-year and 10-year bonds cut to 12.1% and 26.3%, respectively, from 15.4% and 29% in the first half.