Indian bonds join global debt selloff, bruised by oil and US Treasury yields
MUMBAI: Indian government bonds extended losses into a fifth straight session on Wednesday, as U.S. Treasury yields climbed to near three-year highs and surging oil prices rekindled inflation fears. The benchmark 10-year U.S. Treasury yield, a global yardstick for borrowing costs, hovered at 4.81%, its highest level since November 2023. The 5% mark is a threshold traders say could further unnerve…
Mumbai experienced Indian government bonds extending their losses into a fifth consecutive day on Wednesday. This downturn came as U.S. Treasury yields surged to near three-year highs and surging oil prices reignited inflation concerns. The benchmark 10-year U.S. Treasury yield hovered at 4.81%, its highest level since November 2023.
This threshold could further unsettle global markets. Globally, bonds continued their losses, pushing borrowing costs to multi-decade highs, fueled by the Middle East conflict driving energy prices. Brent crude futures reached a six-week high of $95 per barrel in Asian trade. As the world's third-largest oil importer and consumer, India is particularly sensitive to oil price fluctuations.
The yield on the Indian benchmark 6.94% 2036 bond increased by 2 basis points to close at 6.9754% on Wednesday, briefly touching the 7% mark at opening before a dip-buying attempt reduced the sell-off. Traders, however, remained hesitant to buy and maintain positions, with the 10-year yield climbing approximately 13 basis points over the past five sessions.
The crude rally, along with the rise in global yields, has solidified expectations of domestic monetary policy tightening. Wednesday's 364-day Treasury-bill auction reinforced this trend, with India selling the bills at 5.91%, compared to 5.80% the previous week. Overnight indexed swap rates now suggest 75 basis points of Reserve Bank of India rate hikes over the next 12 months.
"Looking ahead, the U.S. FOMC meeting, the Government's second-half borrowing program, developments around crude oil prices and food inflation will be the key factors to watch," stated Murthy Nagarajan, fixed income head at Tata Asset Management. Rates in India displayed a split direction as traders considered the extent of a shallow rate-hike cycle.
The one-year rate dropped by 1.5 basis points to 6%, while two-year rates rose by 1 basis point to 6.22%. The five-year rate increased by 2.5 basis points to 6.53%.
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