10-year bond yield set for biggest quarterly spike in four years

India's benchmark bond was largely flat in a choppy trading session on the last day of the fiscal year, with the yield set to post its biggest quarterly rise in four years as the Middle East war raised oil prices and fuelled inflation fears.

The yield for the 10-year government 6.48% 2035 bond was at 6.9451% as ‌of 10:30 a.m. ⁠IST ⁠on Monday, after ending at 6.9419% in the previous session.

Bond yields move inversely to prices. Indian markets are shut on Tuesday for a local holiday.


The benchmark yield was up 35 basis points in January-March, its biggest surge since the June 2022 quarter, when the central bank had begun its rate hiking cycle with an off-schedule move.

Yields had risen in January in anticipation of heavy borrowing for the next fiscal year, ⁠and eased ‌marginally in February, with most of the quarter's jump coming in March.

The benchmark Brent crude rose 60% for the month, its steepest monthly jump ⁠ever, exceeding gains seen during the 1990 Gulf War as Iran effectively closed the Strait of Hormuz, a conduit for a fifth of the world's oil and gas supplies.

"Bonds will enter the new financial year under full control of bears, and even though we may not touch 7% today, it is just a matter of time before we cross that milestone," a trader with a state-run bank said.

Elevated oil prices are detrimental for India, the ‌world's third-largest crude importer, as they threaten to worsen domestic inflation and widen the current account deficit. The sharp spike in yields are also likely to hurt bank's treasury profits and raise ⁠borrowing costs for the government.

On Monday, the 10-year bond erased the brief gains from the federal government's announcement of a lower-than-expected borrowing calendar for April-September.

RATES

India's overnight index swap (OIS) rates were also on course to register their biggest quarterly jump in four years.

The one-year OIS rate was at 6.00%, up 55 basis points, and the two-year OIS rate closed at 6.22%, up by 67 bps.

The liquid five-year swap rate was at 6.60%, up by 68 bps. The swap rates rose the most since April-June 2022. ($1 = 94.7770 Indian rupees)