India’s 10-year government bond yield climbed to about 7.17%, its highest level in nearly two years, as elevated US Treasury yields and expectations of further interest rate hikes continued to weigh on domestic bonds. The US 10-year yield hovered near 5.2%—a peak not seen in almost two decades—driven by stronger economic data and hawkish signals from the Federal Reserve that reinforced expectations of additional tightening.
Anticipation of a policy rate hike by the Reserve Bank of India at next week’s meeting has also strengthened, following August inflation of 4.82% and the Fed’s latest move. However, the pressure on yields may be partially offset by a reduction in planned issuance of five-year and 10-year bonds for the October–March period, which could provide some relief after the recent selloff.
The government plans to borrow INR 7.86 trillion in the second half of the fiscal year. Within this, the share of five-year and 10-year bonds has been reduced to 12.1% and 26.3%, respectively, from 15.4% and 29% in the first half.
