FX.co ★ India 10Y Yield Approaches 9-Month High

The yield on India's 10-year government securities escalated to 6.65%, nearing its peak over the past nine months. This surge followed the Reserve Bank of India's decision to exclude this benchmark bond from its latest 500 billion rupee bond purchase initiative. Many investors had expected the central bank to support this widely-held 10-year bond, so its omission led to a selloff. Consequently, yields increased and market uncertainty heightened. Despite the RBI’s comprehensive liquidity strategies, including a $5 billion forex swap aimed at ensuring financial stability, persistent foreign capital outflows and swelling swap rates continued to exert pressure on the sovereign bond curve. Additionally, diminishing expectations for further interest rate reductions by the RBI have kept the yields on the 10-year government security at an elevated level. Previously, the central bank had reduced the repo rate by 25 basis points to 5.25% in December, signaling that this might be the extent of its current monetary easing. However, the rise in yields was somewhat restrained as Indian bonds reflected the trends in U.S. Treasuries after the Federal Reserve’s 25 basis point rate cut and their less severe than anticipated commentary.