FX.co ★ India 10Y Yield Approaches 10-Month Highs

The yield on India’s 10-year government securities has risen to approximately 6.67%, inching closer to ten-month highs, spurred by positive PMI data that has lifted market sentiment. Recent flash surveys indicate that India's economic activity picked up speed in January, with the manufacturing Purchasing Managers' Index (PMI) advancing to 56.8 in December, and the services PMI increasing to 59.3, thereby elevating the composite index to 59.5. Robust domestic demand fueled this growth, despite persistent challenges such as high US tariffs and ongoing trade negotiations with Washington casting a shadow over future prospects. Meanwhile, the increasing borrowings by state governments are complicating the Reserve Bank of India’s efforts to reduce yields. The issuance of sub-sovereign debt is nearing central government borrowing levels, increasing supply and driving up long-term bond yields, even amidst recent rate cuts. Analysts caution that this rising supply is causing the yield curve to steepen and is hindering the effective transmission of monetary policy. The RBI is anticipated to intervene through the purchase of central government bonds to alleviate this upward pressure.