Indian government bonds sank early on Wednesday, with the benchmark 10-year yield briefly topping 7% for the first time in three months as a deepening global debt selloff and a fresh spike in oil prices rattled investors.The yield on the benchmark 6.94% 2036 bond was up 3 basis points at 6.9898% as of 10:45 a.m. IST, after breaching 7% at the open. It was near a three-month high.The selloff followed a global reassessment of inflation, fiscal burdens and geopolitical risks as U.S.-Iran hostilities escalated and the vital Strait of Hormuz remained shut.Bond selloff deepens as inflation, oil prices jolt marketsThe bond market is undergoing a tumultuous selloff, resulting in elevated borrowing costs for potential borrowers. Concerns surrounding inflation and rising government debt are amplified by increasing energy prices. As yield rates climb, homeowners should brace for higher mortgage costs, adding fiscal strain for many. Additionally, bond investors are seeking higher premiums to compensate for inflation risks, with tech companies’ investments in AI further impacting the market dynamics.The U.S. 10-year Treasury yield rose to 4.81% in Asian trade, its highest since November 2023. Japan's 10-year yield touched 3% on Tuesday for the first time since 1996, while German and UK yields hit their highest in more than 15 years.Higher developed-market yields reduce the return advantage of emerging-market debt and can spur foreign outflows."If U.S. yields continue climbing, the Indian 10-year yield could head toward 7.15% in the near term," a trader at a private bank said.Brent crude topped $95 a barrel during Asian hours, its highest in about six weeks, after fresh U.S.-Iran attacks.India, the world's third-largest oil importer, is vulnerable to a prolonged oil shock that could raise inflation and strain government finances.Higher oil prices and global yields have also raised expectations of tighter monetary policy.Markets now price a 68% chance of a 25-basis-point Fed rate hike this month, up from 41% a week ago, according to CME FedWatch.Hawkish U.S. and domestic central-bank commentary have strengthened bets that the Reserve Bank of India may turn toward tightening sooner rather than later.HSBC expects two 25-basis-point RBI increases in FY27, taking the repo rate to 5.75%.RATESIndia's overnight indexed swaps faced strong paying pressure.The one-year rate rose 3 bps to 6.0450%, while two-year rates jumped 5 bps to 6.26%. The five-year rate was up 6 basis points at 6.5650%.
Indian 10-year bond yield tops 7% on global debt rout, oil rally
Indian government bonds declined early Wednesday, with yields briefly exceeding seven percent. A global debt selloff and rising oil prices are impacting investor sentiment. Higher developed market yields reduce emerging market debt attractiveness and can spur outflows. Brent crude prices surged, increasing India's vulnerability to inflation and fiscal strain. Markets now anticipate tighter monetary policy from both the US Federal Reserve and the Reserve Bank of India.
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