FX.co ★ India 10Y Yield Hits Two-Week High

The yield on India's 10-year government securities (G-Sec) has climbed above 6.6%, marking a two-week peak, as the markets brace for unprecedented state borrowing amid sluggish demand and limited liquidity. Indian states are set to raise 5 trillion rupees in the January-March timeframe, marking their largest quarterly borrowing to date, with an auction of 301 billion rupees scheduled for Tuesday. Recently, traders have been divesting bonds due to uncertainty regarding the market's capacity to handle the increased supply surge. The liquidity situation has also tightened, with the banking system's daily surplus averaging just 614 billion rupees as of January 2, a decrease from 1.78 trillion rupees in November. Foreign investors remain wary following the net sale of 123 billion rupees of index-linked bonds in December, compounded by concerns over the rupee's decline. In an effort to stabilize the market, the Reserve Bank of India (RBI) plans to inject 500 billion rupees through bond purchases, although lenders are anticipated to propose bonds at yields higher than the current levels. With the supply reaching record levels and demand waning, the yield on the 10-year bond could potentially approach 6.7%.