India 10Y Yield Hits 4-Month High

The yield on India’s 10-year G-Sec rose to around 7.1%, reaching more than four-month highs, as a sharp selloff in US Treasuries and expectations of further RBI liquidity tightening added to upward pressure on domestic yields. Market participants cited the surge in US yields after stronger economic data revived inflation concerns. Brent crude also climbed back above $100 a barrel, adding to domestic inflation risks and expectations of an RBI rate hike at its October policy meeting. Meanwhile, the RBI has reportedly conducted at least $10 billion in sell-buy FX swaps in recent weeks to drain excess rupee liquidity, while surplus banking liquidity had reached a record INR 11 trillion earlier this month. The central bank’s continued efforts to absorb excess cash are expected to keep domestic borrowing costs elevated.

The yield on India’s 10-year G-Sec hovered around 7.0%, trading in a tight range as lower oil prices supported bonds, while firm expectations of an RBI rate hike capped gains. Brent crude fell nearly 10% from last week’s peak to around $98 a barrel as supply flows improved and shipments through the Strait of Hormuz resumed, easing inflation concerns. However, August inflation at 4.82% and the Federal Reserve’s recent rate hike have strengthened expectations of an RBI rate increase at its October 7 meeting. The benchmark 6.94% 2036 yield was at 7.0052%, after ending at 7.0106% Tuesday, down six basis points from Friday. Market participants also digested stronger PMI data, with the Manufacturing PMI rising to 55.7 in September from 52.8 in August, while the Composite PMI climbed to 56.5 from 54.6, marking the fastest private-sector expansion since June.

The yields on India’s 10-year G-Sec hovered around 7.0%, extending losses for another session as a pullback in crude oil prices eased concerns over imported inflation and the prospect of near-term RBI rate hikes, triggering short-covering after the recent selloff. Brent crude extended its decline after reports of additional Saudi crude cargoes through Oman eased supply concerns, although prices remained above $100 a barrel amid ongoing Middle East tensions. The decline in oil prices also helped ease pressure from expectations of an RBI tightening cycle, with traders widely anticipating a 25-basis-point hike in October. Meanwhile, the RBI’s first INR 50,000 crore OMO sale drew INR 66,590 crore of bids, reflecting strong demand for government debt and helping limit upward pressure on yields despite the central bank accepting bonds at higher-than-prevailing yields. Traders also continued to assess the RBI’s plans to withdraw excess liquidity.