India 10Y Yield Retreats from Multi-Month Highs

The yield on India’s 10-year G-Sec fell to around 6.94%, retreating from near three-month highs as larger-than-expected FCNR(B) inflows boosted liquidity and improved sentiment toward Indian debt. The RBI said it attracted more than $127 billion through the FCNR(B) route, far exceeding market expectations of around $90 billion, taking total inflows including external commercial borrowings and overseas foreign-currency borrowings to $136.38 billion. The inflows boosted banking-system liquidity as banks swapped much of the foreign currency with the RBI, while the stronger rupee eased imported inflation concerns. This is expected to support demand for shorter-duration securities, particularly five-year maturities, with much of the funds likely to remain in the system for three to five years. However, elevated crude prices and US Treasury yields capped the decline, with Brent near $95 a barrel and the US 10-year yield above 4.80%.

India’s 10-year G-Sec yield rose to around 6.98%, extending gains for a fourth consecutive session to a near three-month high as rising oil prices, higher US Treasury yields, and a global debt selloff increased pressure on Indian yields. The benchmark 6.94% 2036 yield briefly breached 7% at the open for the first time in three months, while the US 10-year Treasury yield climbed to 4.81%, its highest since November 2023, narrowing the yield advantage of Indian debt and raising the risk of foreign outflows. Meanwhile, Brent crude topped $95 a barrel following renewed US-Iran strikes and concerns over disruptions through the Strait of Hormuz, adding to inflation and fiscal risks for India. Expectations of tighter monetary policy also pushed Indian yields higher, with markets pricing a 68% chance of a 25-basis-point Federal Reserve rate hike this month, up from 41% a week earlier, while hawkish commentary strengthened bets on earlier RBI tightening.

The yield on India’s 10-year G-Sec rose to around 6.95%, extending gains from the previous session to a twelve-week high as rising expectations of tighter monetary policy and elevated oil prices added to upward pressure on yields. Hawkish comments from Fed Chair Kevin Warsh lifted expectations of a September US rate hike, keeping US Treasury yields elevated and reducing demand for Indian debt. In the domestic market, investors remained cautious ahead of April-June GDP data, with stronger-than-expected growth potentially reinforcing expectations for RBI policy tightening. Meanwhile, Brent crude climbed back toward $90 a barrel, heightening inflation concerns and limiting the scope for monetary easing. The RBI’s August meeting minutes, which indicated that policymakers could consider rate hikes if inflation risks broaden, further dampened sentiment toward government bonds.