India bonds slide for sixth week as global rout deepens

Rising global borrowing costs and elevated oil prices extended Indian government bonds' losing streak to a sixth week on Friday, while investors cautiously positioned for a likely Reserve Bank of India rate hike next month.

The benchmark 6.94% 2036 bond yield rose 1 bp to 7.1194% on Friday, up 5 basis points on the week and about 36 bps over six weeks.

The benchmark 10-year yield was perched at a four-month peak, although strong demand at a 340-billion-rupee ($3.55 billion) auction of the note kept it below the closely watched 7.15% level, which was last breached in May 2024.

Bonds Corner Powered By India bonds slide for sixth week as global rout deepens

Indian government bonds continue to struggle amidst escalating global borrowing rates and soaring oil prices. As market participants strategize for a potential rate hike by the Reserve Bank of India, the 10-year bond yield has surged to a four-month pinnacle, instilling investor apprehension. However, Indian bonds have proven surprisingly resilient, buoyed by robust liquidity. Most analysts now foresee an impending rate increase in the next policy meeting.

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The global debt selloff showed little sign of easing this week. The US 10-year Treasury yield topped 5.20% intraday, its highest since 2007, while Japan's 10-year yield climbed to 3.115%, levels last seen in August 1996. Germany's 10-year yield touched a 17-year high of 3.5798%.

Despite the global rout, Indian bonds have remained relatively resilient, cushioned by ample banking system liquidity, traders said.

Daily liquidity surplus was last at 4.27 trillion rupees, down from a record 11.16 trillion rupees hit earlier this month.

The RBI has continued to absorb surplus cash through open-market sales, variable-rate reverse repos and sell/buy swaps, reinforcing expectations of further policy tightening.

After August retail inflation accelerated to 4.82% and the Federal Reserve raised rates earlier this month, most participants now expect the RBI to lift rates at its October 7 policy review.

"Rising core inflation, broader price pressures, low real rates and global monetary tightening tilt the balance towards a hike," said Apoorva Javadekar, chief economist at Shriram Group, citing oil as the key driving factor.

RATES

Overnight indexed swap rates rose this week on rising rate hike bets and global yields.

For the week, the one-year rate added 9 bps to 6.16%, the two-year rose 9 bps to 6.37%, and the five-year gained 4 bps to 6.6250%.
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