India 10Y Yield Hits Over 2-Year High

The yield on India’s 10-year G-Sec rose to around 7.21%, reaching more than two-year highs as elevated US Treasury yields and expectations of a tighter RBI policy weighed on sentiment ahead of next week’s policy decision. The benchmark 6.94% 2036 bond yield closed at 7.19% on Wednesday, a two-and-a-half-year high, after rising 24 bps in September and 44 bps in the third quarter. The US 10-year Treasury yield climbed to 5.30%, its highest since 2007, while traders remained cautious ahead of an INR 330 billion debt sale. Meanwhile, markets are pricing in nearly 100 bps of RBI tightening over the next 12 months, with the one-year overnight indexed swap rate rising 21 bps in September to 6.21%. The RBI’s efforts to drain surplus liquidity following record $133 billion FCNR(B) inflows have further pressured yields, while the government’s plan to borrow nearly INR 8 trillion through March adds to supply concerns.