India 10Y Yield Eases From 3-Year High

The yield on India’s 10-year G-Sec hovered around 7.37%, easing from three-year highs as investors stepped in to seek value after a sharp selloff, with heavy purchases by local lenders, particularly state-run banks, helping support prices. However, gains remained limited ahead of INR 312 billion in state debt sales and the RBI’s INR 250 billion open market bond sale, while another INR 340 billion auction is scheduled for Friday. Yields have risen 20 basis points over four sessions since the RBI raised its policy rate by 25 basis points and shifted to a calibrated tightening stance. Expectations of further rate hikes strengthened after September inflation accelerated to 5.54%, while Brent crude remained above $105 a barrel. Investors also awaited US inflation data for clues on the Federal Reserve’s policy outlook.

The yield on India’s 10-year G-Sec rose more than 1% to 7.38%, reaching its highest level in over three years, as the Reserve Bank of India’s liquidity-tightening measures and hawkish policy shift intensified selling pressure. The central bank plans to sell INR 250 billion in bonds on Tuesday and raise banks’ daily cash reserve requirement maintenance to 99% from 90%, effective October 16, while its foreign-exchange measures could further drain rupee liquidity. The RBI’s recent 25-basis-point rate hike and signals of further tightening have also prompted mutual funds to reduce exposure to longer-dated government bonds, following net sales of INR 378 billion in July-September and a further INR 51 billion in the three sessions after the rate increase. Meanwhile, Brent crude above USD 100 per barrel and expectations of September inflation rising to 5.4% year-on-year added to concerns over price pressures.

The yield on India’s 10-year G-Sec hovered around 7.29%, pausing gains after reaching two-year highs, as elevated crude oil prices and a hawkish Reserve Bank of India (RBI) stance continued to weigh on Indian yields, while fresh debt supply added to selling pressure. The government is set to raise INR 360 billion through a bond auction, including a sizable issuance of 15-year paper, raising concerns over demand amid rising yields. Brent crude remained elevated despite easing slightly from recent highs, keeping inflationary pressures and fiscal risks in focus for oil-import-dependent India. The RBI’s 25-basis-point rate hike to 5.50% on Wednesday, alongside its shift to a “calibrated tightening” stance and an upward revision to its inflation forecast to 5.2%, further reinforced expectations of monetary tightening, with economists anticipating the terminal repo rate to reach at least 6%.