FX.co ★ India 10Y Yield Rises After Index Setback

The yield on India's 10-year Government Securities (G-Sec) has risen to approximately 6.63%, reflecting a decline in bond market sentiment. This shift followed the decision by Bloomberg Index Services to postpone the incorporation of Indian bonds into its global bond index. As a result, investors began scaling back positions that were based on the anticipation of foreign capital influx, thereby delaying an expected $10-20 billion entry into the debt market. This development occurred despite the state’s scaled-back borrowing initiative, planning to auction INR 268 billion this week as part of a record INR 8 trillion issuance plan from January to March. Liquidity conditions have tightened significantly, with the banking system's surplus decreasing sharply since November. This, coupled with foreign investors' cautious stance—evident in their selling of index-linked bonds in December—has added pressure. Although the Reserve Bank of India (RBI) has been providing support through bond purchases and plans to conduct a USD 10 billion dollar-rupee FX swap, traders continue to anticipate higher yields amid global risk factors and oil price volatility.