Investors dump India bonds after hawkish RBI minutes

Domestic bond prices fell sharply on Thursday following hawkish remarks from the Reserve Bank of India (RBI) in its policy minutes, adding to concerns over rising oil prices. The 10-year benchmark bond's yield rose to a two-month high of 6.8709% due to an expected increase in borrowing costs. RBI policymakers were more inclined to raise interest rates if inflation risks materialized, with concerns about food, fuel, and input costs contributing to broader price pressures.

RBI Governor Sanjay Malhotra suggested that evidence of such spillovers could call for "policy tightening." The market's reaction to the RBI's minutes revived expectations of future rate hikes, intensifying the bond selloff. Analyst Tanay Dalal from Axis Bank noted that the bond market was moving towards eventual hikes, with a potential October move being the earliest possibility.

India, as the world's third-largest oil importer, is sensitive to higher crude costs, which could exacerbate inflation and strain the current account and government finances. The U.S. 10-year yield also increased, adding to the downward pressure on bonds. Global bond markets are grappling with heightened uncertainty, given the complex interplay of factors like U.S. tariffs, mounting debt, and the Iran conflict.