The benchmark 6.94% 2036 bond ended at 7.2994% on Friday, up from 7.2868% on Thursday. The yield rose 9 basis points this week, adding to a cumulative 45-basis-point rise over the previous seven weeks since August 17.
The Reserve Bank of India raised its repo rate by 25 basis points to 5.50% this week and shifted its policy stance to "calibrated tightening" from neutral, signalling the possibility of further rate hikes.
Bonds Corner Powered By India bonds extend weekly slide; struggle to shake off RBI hike, hawkish stance shift
Indian government bonds have faced a downturn for the eighth consecutive week, primarily influenced by soaring oil prices and a more aggressive stance from the central bank. The yield on benchmark bonds has surged, signaling a drop in investor confidence. Additionally, the Reserve Bank of India raised the repo rate to 5.50%, with economists anticipating further increments that may take it to at least 6.00%.
Reissued bonds account for nearly 66% of state borrowings in H1 FY27: ReportSurging bond yields likely to slash banks' treasury income
India's 10-year yield hits Dec 2023 peak as US debt rout, oil spike hurtIndia bonds hemmed in as market digests higher rates Browse all Bonds News with"Our long-held view is that RBI would turn hawkish as inflationary pressures start to build hence this shift is within our expectations. We have another 25 bps hike in our forecast profile through March 2027, with the risk skewed towards more rather less hikes," said Lavanya Venkateswaran, executive director and senior ASEAN and India economist at OCBC Bank.
Most economists now expect India's terminal repo rate to reach at least 6.00%, while Standard Chartered Bank and Goldman Sachs forecast the same at 6.25%.
Brent crude climbed above $105 a barrel this week as attacks on vessels intensified, before easing slightly after U.S. President Donald Trump said Washington was holding productive talks with Iran.
Higher oil prices pose risks to energy importer India, threatening government finances and potentially pushing up headline inflation beyond the direct impact of fuel costs.
RATES
India's overnight indexed swap rates were broadly unchanged for the week, as easing US yields offset the impact of policy stance change.
The one-year OIS rate ended at 6.24%, the two-year rate closed at 6.44%, while the liquid five-year rate settled at 6.7250%.
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