Risk aversion spreads across assets as bond yields hit a two-year high
A combination of rising global bond yields and higher inflation expectations has made domestic government bonds cheaper, pushing yields higher
On October 1, the benchmark 10-year government bond yield in India surged to a two-year high of 7.21 per cent, driven by global yield increases and heightened inflation expectations. This marked the highest level since April 19, 2024 when the yield stood at 7.22 per cent. The rise in yields is attributed to a combination of factors, including an uptick in global bond yields, such as the US 10-year Treasury yield reaching a two-decade high of 5.33 per cent due to concerns over government debt and oil prices, and strong inflationary pressures in India, with markets anticipating a 25 basis point rate hike by the Reserve Bank of India (RBI) at its next meeting on October 7, 2026.
The inflation surge is primarily due to a 13 per cent rainfall deficit, which has fueled retail inflation. Experts believe that the current yield levels are unlikely to fall below 7.2 per cent unless the West Asia crisis eases, oil prices drop below $80 a barrel, and the rupee stabilizes, currently trading at ₹96.25 against the dollar, down 30 paise from the previous day.
The depreciation of the rupee, along with foreign fund outflows and high crude prices, has intensified risk aversion among investors, contributing to a sustained decline in Indian equity markets for the eighth week in a row. This marks only the second time in the past 25 years that the Nifty has entered such a prolonged losing streak, with the index closing at 22,421.95, down over 10.5 per cent since August 2026.
Written by urgent.news from Hindu BusinessLine's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
