India bonds sink deeper on RBI commentary, inflation concerns
MUMBAI: Indian government bonds extended losses on Wednesday, driving the 10-year yield to its highest since March 2023, as hawkish remarks from the central bank chief and rising oil-led inflation concerns prompted tradersto further pare their positions. The benchmark 6.94% 2036 bond surged 3.5 basis points to 7.3999%, a more-than-three-year high. Sentiment soured after the Reserve Bank of India…
Mumbai saw Indian government bonds plummet on Wednesday, with the 10-year yield hitting its highest level since March 2023. This decline came as hawkish remarks from the Reserve Bank of India's (RBI) chief and mounting oil-driven inflation concerns prompted traders to reduce their exposure. The benchmark 6.94% 2036 bond surged 3.5 basis points to 7.3999%, marking its most significant gain in over three years.
Sentiment turned sour after RBI Governor Sanjay Malhotra's interview on Tuesday, in which he stated that while the central bank doesn't typically use monetary policy to protect financial stability, the two cannot be entirely separated. Since last week, the RBI has implemented several measures to support the Indian rupee, such as routing oil companies' dollar purchases through a special facility and imposing cash margins on foreign exchange hedges.
The bond sell-off highlighted how the RBI's recent actions have shifted the responsibility of defending the Indian rupee onto interest rates, widening the gap with US yields. This has led traders to expect a potential December rate hike. India's wholesale inflation surged more than expected to 11.39% in September, while retail inflation rose to 5.54% and was likely to surpass the RBI's upper tolerance limit of 6% in October.
Oil prices increased 0.8% to $106 a barrel, exacerbating the pressure. The RBI, which aims to control retail inflation, raised the repo rate last week for the first time in nearly four years. Analyst Payal V. Pandya of Bajaj Broking Private foresees a rate hike in the December 2026 Monetary Policy Committee (MPC) meeting if CPI inflation breaches the RBI's upper limit of tolerance in upcoming data.
US inflation data released later on Wednesday might provide additional insights into the Federal Reserve's rate trajectory. Overnight indexed swap rates also spiked sharply on expectations of a December rate hike, with the one-year OIS rate climbing 10.25 basis points to 6.4375%, the two-year rate up 8 basis points at 6.5950%, and the five-year rate increasing 4.75 basis points to 6.7925%.
Written by urgent.news from Business Recorder's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
