India partially cancels debt sale for first time in a year as rates spike

Mumbai witnessed a rare occurrence on Friday as the Reserve Bank of India (RBI) partially canceled an auction of government security, indicating a possible early move by authorities to curb rising bond yields. The central bank accepted bids worth only 45.06 billion rupees ($471.12 million) for the 6.20% 2029 bond, which represents just over 40% of the planned borrowing of 110 billion rupees.

The three-year bond, with a yield of 6.4566%, saw a 25 basis point increase in the last four weeks since its issuance, surpassing the previously estimated cutoff yield of 6.45%. The decision to partially cancel the auction was seen as a response to the market's growing apprehension over interest rate expectations, as traders noted that complete fulfillment of the target could have pushed yields towards the 6.50% mark.

The situation was further exacerbated by the recent escalation of military conflicts in the Middle East, which has led to a surge in oil prices and, consequently, upward pressure on yields. Additionally, recent economic data from the U.S. has fueled expectations of an imminent Federal Reserve rate hike, contributing to the upward trend in the 10-year Treasury yield, which has neared the 5% threshold.

This development marks the first instance of the RBI canceling a security auction in October 2025, as investors had been persistently demanding higher yields.