Indian 10-year bond yield tops 7% on global debt rout, oil rally
Indian government bonds declined early Wednesday, with yields briefly exceeding seven percent. A global debt selloff and rising oil prices are impacting investor sentiment. Higher developed market yields reduce emerging market debt attractivenes...
By Reuters |
ETMarkets.com
Indian government bonds sank early on Wednesday, with the benchmark 10-year yield briefly topping 7% for the first time in three months as a deepening global debt selloff and a fresh spike in oil prices rattled investors.
The yield on the benchmark 6.94% 2036 bond was up 3 basis points at 6.9898% as of 10:45 a.m. IST, after breaching 7% at the open. It was near a three-month high.
The selloff followed a global reassessment of inflation, fiscal burdens and geopolitical risks as U.S.-Iran hostilities escalated and the vital Strait of Hormuz remained shut.
The U.S. 10-year Treasury yield rose to 4.81% in Asian trade, its highest since November 2023. Japan's 10-year yield touched 3% on Tuesday for the first time since 1996, while German and UK yields hit their highest in more than 15 years.
Higher developed-market yields reduce the return advantage of emerging-market debt and can spur foreign outflows.
"If U.S. yields continue climbing, the Indian 10-year yield could head toward 7.15% in the near term," a trader at a private bank said.
Brent crude topped $95 a barrel during Asian hours, its highest in about six weeks, after fresh U.S.-Iran attacks.
India, the world's third-largest oil importer, is vulnerable to a prolonged oil shock that could raise inflation and strain government finances.
Higher oil prices and global yields have also raised expectations of tighter monetary policy.
Markets now price a 68% chance of a 25-basis-point Fed rate hike this month, up from 41% a week ago, according to CME FedWatch.
Hawkish U.S. and domestic central-bank commentary have strengthened bets that the Reserve Bank of India may turn toward tightening sooner rather than later.
HSBC expects two 25-basis-point RBI increases in FY27, taking the repo rate to 5.75%.
The one-year rate rose 3 bps to 6.0450%, while two-year rates jumped 5 bps to 6.26%. The five-year rate was up 6 basis points at 6.5650%.
The yield on the benchmark 6.94% 2036 bond was up 3 basis points at 6.9898% as of 10:45 a.m. IST, after breaching 7% at the open. It was near a three-month high.
The selloff followed a global reassessment of inflation, fiscal burdens and geopolitical risks as U.S.-Iran hostilities escalated and the vital Strait of Hormuz remained shut.
The U.S. 10-year Treasury yield rose to 4.81% in Asian trade, its highest since November 2023. Japan's 10-year yield touched 3% on Tuesday for the first time since 1996, while German and UK yields hit their highest in more than 15 years.
Higher developed-market yields reduce the return advantage of emerging-market debt and can spur foreign outflows.
"If U.S. yields continue climbing, the Indian 10-year yield could head toward 7.15% in the near term," a trader at a private bank said.
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Brent crude topped $95 a barrel during Asian hours, its highest in about six weeks, after fresh U.S.-Iran attacks.
India, the world's third-largest oil importer, is vulnerable to a prolonged oil shock that could raise inflation and strain government finances.
Higher oil prices and global yields have also raised expectations of tighter monetary policy.
Markets now price a 68% chance of a 25-basis-point Fed rate hike this month, up from 41% a week ago, according to CME FedWatch.
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Hawkish U.S. and domestic central-bank commentary have strengthened bets that the Reserve Bank of India may turn toward tightening sooner rather than later.
HSBC expects two 25-basis-point RBI increases in FY27, taking the repo rate to 5.75%.
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RATES
India's overnight indexed swaps faced strong paying pressure.The one-year rate rose 3 bps to 6.0450%, while two-year rates jumped 5 bps to 6.26%. The five-year rate was up 6 basis points at 6.5650%.
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