FX.co ★ India 10Y Yield Hits Over 2-Year High

The yield on India’s 10-year government security (G-Sec) climbed to around 7.21%, marking a more than two-year high, as elevated US Treasury yields and expectations of a tighter Reserve Bank of India (RBI) policy weighed on sentiment ahead of next week’s policy review. The benchmark 6.94% 2036 bond yield closed at 7.19% on Wednesday, its highest level in two and a half years, after rising 24 basis points in September and 44 basis points over the third quarter.

In the US, the 10-year Treasury yield advanced to 5.30%, its highest level since 2007, while domestic traders remained cautious ahead of an INR 330 billion government bond auction. At the same time, markets are pricing in almost 100 basis points of RBI tightening over the next 12 months, reflected in the one-year overnight indexed swap rate, which rose 21 basis points in September to 6.21%.

The RBI’s liquidity absorption measures, following record FCNR(B) inflows of $133 billion, have added further upward pressure on yields, while the government’s plan to borrow nearly INR 8 trillion by March is reinforcing concerns about increased bond supply.