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India Bonds Tumble on US Yields, Oil Surge
8 Oct
Summary
- US Treasury yields and oil prices are pressuring Indian government bonds.
- The Reserve Bank of India recently enacted its first policy rate increase.
- Benchmark 10-year bond yields are predicted to reach 7.40%.
Indian government bonds experienced a sharp decline, influenced by rising US Treasury yields and escalating oil prices stemming from Middle East supply worries. This downturn occurred shortly after the Reserve Bank of India (RBI) implemented its first policy rate increase since December 2023, signaling a move towards calibrated tightening.
The benchmark 6.94% 2036 bond yield climbed significantly, reaching its highest point in nearly three years and triggering stop-loss trades. Crude oil prices surged over $105 per barrel amid persistent concerns about Middle East supplies and disruptions to US offshore production.
Analysts predict that the benchmark 10-year Indian government bond yield could peak at 7.40% by the third quarter of fiscal year 2027, a revision from previous forecasts. Market participants are also monitoring central bank actions on liquidity, substantial government borrowing plans, and the overall supply of debt.
Overnight indexed swap rates in India also saw increases, reflecting the broader market sentiment of debt sell-offs in both US and local markets. This indicates a cautious outlook for Indian government bonds in the immediate future.
