The yield on India’s 10-year government security (G-Sec) climbed to around 7%, its highest level in more than three months, as a global bond selloff gathered pace. The selloff was driven by a sharp rise in crude oil prices, higher US Treasury yields, and mounting expectations of further monetary tightening worldwide.
Brent crude surged past $100 a barrel to about $108 amid escalating tensions in the Middle East, which disrupted energy supplies and shipping routes through the Strait of Hormuz and the Red Sea. These developments have heightened inflation worries for India, a major oil importer.
At the same time, US Treasury yields moved higher after stronger-than-expected producer price inflation bolstered expectations that the Federal Reserve will raise interest rates at its meeting next week. Futures markets are now pricing in about a 72% probability of a 25-basis-point hike, with the US 10-year yield approaching 5%.
Yields on German and Japanese 10-year government bonds also advanced to multi-year highs, further underscoring the global nature of the bond market correction.
On the domestic front, Indian government bonds came under additional pressure amid expectations that the Reserve Bank of India may withdraw excess liquidity from the financial system, where banking sector liquidity has swelled to more than INR 10 trillion.
