India’s 10-year bond yield nears 7.50% after 11-week climb
India's benchmark 10-year government bond yield rose for an eleventh consecutive week, touching 7.498% on Tuesday as high crude prices and rupee weakness fuel expectations of another RBI rate hike.
The advance brings the yield close to the 7.50% threshold, a level the market hasn’t breached in four years. With Brent crude trading near $115 per barrel, inflation worries have grown sharper, and market participants are now pricing in the possibility of a half-point RBI rate hike in December.
RBI Governor Sanjay Malhotra recently noted that keeping prices stable and maintaining financial stability go hand in hand, and that monetary policy cannot be set without considering wider financial conditions. Market watchers are reading these comments, combined with the rupee’s ongoing weakness, as hints that further tightening could be coming.
Despite the pressure from costly oil and a soft currency, a number of bond fund managers think the debt market’s downturn is approaching a point where valuations look attractive. Sachin Bajaj, chief investment officer at Axis Max Life Insurance, called the 7.50% mark a solid entry point for medium-term holders, though he warned yields could climb further, forecasting a near-term range of 7.25% to 7.75%. The last time India’s 10-year bond yielded more than 7.50% was in 2022, in the wake of an aggressive rate-hiking cycle from the RBI.
VRC Reddy, who heads treasury operations at Karur Vysya Bank, said the bank plans to start adding to its holdings once yields cross 7.50%, and would step up purchases should levels climb near 7.60%. A comparable view came from Rahul Bhuskute, who holds the chief investment officer role at Bharti AXA Life Insurance; he suggested that most inflation risk is already baked into current prices and put fair value for the 10-year yield at 7.15% to 7.45% over the next six to twelve months.
India’s derivatives market is currently pricing in close to 125 basis points of rate increases over the coming year, a figure Bhuskute considers too aggressive. He instead expects the RBI’s repo rate — now at 5.50% after a 25-basis-point hike earlier this month — to peak somewhere in the 6.00% to 6.25% range.
Why it matters: The rising India 10-year bond yield lifts borrowing costs across the economy and signals shifting rate expectations tied to oil prices and currency swings. Movements in Indian government debt and the rupee also tend to influence broader sentiment toward emerging markets and risk assets.
Source: Economic Times Markets