India 10Y Yield Nears Three-Month High

The yield on India’s 10-year G-Sec rose to around 6.97%, hovering near three-month highs as surplus liquidity and expectations of further RBI cash-draining measures weighed on sentiment. Banking-system liquidity swelled to a record INR 10.73 trillion, prompting the RBI to step up efforts to absorb excess funds after weak demand for its INR 7 trillion 30-day variable-rate reverse repo auction. The central bank received INR 2.59 trillion in bids and followed it with an additional INR 5 trillion overnight operation. Meanwhile, rising oil prices and elevated U.S. Treasury yields added to pressure on Indian bonds, with Brent crude trading near $97 a barrel. The benchmark 6.94% 2036 bond yield ended at 6.9625% on Friday, up 5 basis points for the week, marking a third consecutive weekly increase. The weak auction response also raised concerns that the RBI may need to adopt more aggressive measures to sterilize the excess liquidity.

The yield on India’s 10-year G-Sec eased to around 6.95%, extending losses for another session as softer US Treasury yields and fading expectations of a September Fed rate hike improved global bond sentiment. Fed Governor Christopher Waller said the central bank could keep rates unchanged this month if upcoming data confirms easing inflation pressures, bringing the probability of a September hike down to around 50% from 63% previously. Meanwhile, strong inflows through the RBI’s special schemes have lifted banking-system liquidity to a record INR 9.7 trillion, supporting demand for shorter-duration government bonds. However, elevated oil prices continued to weigh on sentiment, with Brent crude holding above $95 a barrel on renewed US-Iran tensions. Meanwhile, investors awaited the government’s INR 320 billion bond auction, including INR 210 billion of a new five-year paper, for cues on demand.

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.