FX.co ★ India 10-Year Yield Surges on Outlook of Higher Bond Supply

In August, the yield on India's 10-year Government Security (G-Sec) edged closer to the 6.5% mark, reaching its highest point in four months, and halting its previous strong performance noted since the second quarter. This shift can be attributed to the anticipated increase in bond supply, as financial markets expressed concern over the potential rise in bond issuance. These concerns emerged following a lackluster debt auction and are linked to the expectation that higher tariffs imposed by the United States on India will push New Delhi to boost its borrowing efforts and possibly initiate a new phase of fiscal stimulus, particularly targeting export-driven energy sectors. President Trump of the United States raised tariffs on India to 50%, effectively doubling the "reciprocal" tariffs, in response to India's ongoing purchase and re-exportation of Russian oil. These international developments have overshadowed a sharper-than-expected decline in domestic inflation, which has led many to speculate that the Reserve Bank of India (RBI) may introduce another interest rate cut this year. Domestic inflation decreased to 1.55%, significantly undercutting market forecasts and slipping below the RBI's inflation target lower boundary of 2% for only the third time since the target framework was established in 2016.