The yield on India’s 10-year government security eased to about 7.1%, pulling back from recent multi-month highs as a decline in US Treasury yields and softer oil prices reduced pressure on global bonds ahead of the US Federal Reserve’s policy decision. The benchmark yield had touched 7.07% on Tuesday, its highest level in four months, driven by a sharp rise in crude prices and elevated US yields that intensified inflation worries and expectations of tighter monetary policy.
The US 10-year yield retreated after briefly crossing 5% in the previous session, while Brent crude prices fell following an unexpected increase in US crude inventories. This more benign global backdrop provided some support to Indian debt markets. However, the upside remained capped by the Reserve Bank of India’s planned INR 1 trillion in open market operation (OMO) sales and mounting expectations of an October rate hike amid persistently higher inflation. Investor sentiment was also restrained as markets awaited the Fed’s updated economic projections and interest rate guidance.