India 10-year bond yield crosses 7% on rising oil, Treasury yields

MUMBAI: Indian government bonds plunged in early trade on Friday, with the benchmark 10-year yield topping 7% for the first time in more than three months as rising oil prices and US yields drove investors to sell.

The benchmark 6.94% 2036 bond yield hit 7.0226%, its highest in more than three months, after closing at 6.9762% on Thursday.

It was at 7.0154% as of 9:45 a.m. IST.

“This is not only an India problem, we are witnessing a global bond meltdown, with interest rates to be hiked across major economies in coming weeks,” trader with a primary dealership said.  

US yields climbed, with the 10-year note further extending its rise in Asian hours, after data pushed up expectations for a Federal Reserve interest rate hike next week, while soaring oil prices exacerbated inflation worries.

US producer price index increased 5.4% for 12 months through August.

The bets for a 25-basis-point rate hike on Wednesday jumped to 72%, up from 62% earlier, according to the CME FedWatch tool.

The US 10-year Treasury yield was close to hit the 5.00% mark in Asian hours, which would be its highest in nearly three years.

Germany’s 10-year yield reached its highest in more than 15 years, while Japan’s equivalent bond yield jumped to levels last seen in September 1996.  

Oil prices comfortably moved above the $100 per barrel mark, with Brent contract at $108, as an escalating Middle East conflict continued to drive up global fuel costs and energy supply disruptions.

Houthis seized control of Yemen’s port of Mocha, posing a further threat to Red Sea traffic, while Gulf traffic remained restricted through the Strait of Hormuz.

India is the world’s third-largest oil importer and higher crude threatens to swell the import bill and stoke inflation.