Indian bonds battered by global debt rout, oil rally

MUMBAI: Indian government bonds sank early on Wednesday, with the benchmark 10-year yield briefly topping 7% for the first time in three months as a deepening global debt selloff and a fresh spike in oil prices rattled investors.

The yield on the benchmark 6.94% 2036 bond was up 3 basis points at 6.9883% as of 10:30 a.m. IST, after breaching 7% at the open.

It was near a three-month high.

The selloff followed a global reassessment of inflation, fiscal burden and geopolitical risks as US-Iran hostilities escalated and the vital Strait of Hormuz remained shut.

The US 10-year Treasury yield rose to 4.81% in Asian trade, its highest since November 2023. Japan’s 10-year yield touched 3% on Tuesday for the first time since 1996, while German and UK yields hit their highest in more than 15 years.

Higher developed-market yields reduce the return advantage of emerging-market debt and can spur foreign outflows.

“If US yields continue climbing, the Indian 10-year yield could head toward 7.15% in the near term,” a trader at a private bank said. Brent crude topped $95 a barrel during Asian hours, its highest in about six weeks, after fresh US-Iran attacks.

India, the world’s third-largest oil importer, is vulnerable to a prolonged oil shock that could raise inflation and strain government finances.

Higher oil prices and global yields have also raised expectations of tighter monetary policy.

Markets now price a 68% chance of a 25-basis-point Fed rate hike this month, up from 41% a week ago, according to CME FedWatch.

Hawkish US and domestic central-bank commentary have strengthened bets that the Reserve Bank of India may turn toward tightening sooner rather than later.

HSBC expects two 25-basis-point RBI increases in FY27, taking the repo rate to 5.75%.