India’s government bonds and the rupee head into a pivotal week. The benchmark 10-year yield is back near levels last seen in the 2022-23 tightening cycle, and the US Federal Reserve’s policy decision is due while risk appetite remains fragile. The rupee, meanwhile, is holding at 94.94 per dollar.
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Bond Yields Extend Record Weekly Rising Streak
The 10-year yield rose 9 basis points last week to close at 7.4740%, its tenth consecutive weekly gain. It has added 62 bps over the previous nine weeks, the longest run of weekly increases in data going back to 1998, according to Reuters. Economic Times reports the yield is at its highest since March 2023 and close to the 7.61% peak of the last rate-hike cycle.
Crude Oil Is the Biggest Risk
Brent crude futures touched $116.72 a barrel, their highest since April. Markets had assumed disruptions from the US-Iran conflict would be temporary, but dealers now fear elevated prices could last through year-end. That keeps inflation risks alive and raises concerns about the current account deficit, since India imports most of its crude.
Liquidity, Supply, and Foreign Selling Add Pressure
- Foreign outflows: Foreign portfolio investors have sold ₹20,772 crore of Indian debt so far this fiscal year, NSDL data shows.
- Heavy supply: Sustained government borrowing continues to weigh on the market.
- Tight liquidity: Short-term rates have spiked as liquidity drains from the banking system.
- Cancelled auction: The RBI scrapped a ₹23,000 crore treasury bill auction last week, as yield bids were likely higher than its comfort level.
Rupee Steady, Fed in Focus
The rupee ended last week at 94.94, little changed from the previous Friday, after touching a six-week high of 94.30 following RBI currency-supportive measures. An oil surge and risk aversion pared those gains late in the week.
This week, the US Federal Reserve’s decision is the next catalyst. A pause is widely expected, but markets will look for clues on further hikes. A hawkish shift could lift US yields and the dollar, pressuring the rupee.
Rate Hike Expectations Build
Bond sentiment has been hit since the RBI raised its policy rate, changed its stance and followed up with hawkish remarks from Governor Sanjay Malhotra. Market calls for a 50-bps move in December have grown, and State Street’s Aron Hurd expects two to three more hikes in this cycle.
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Where Could the 10-Year Yield Go?
| Source | Forecast | Condition |
| Rajeev Pawar, Ujjivan Small Finance Bank | 7.75% by December | Heavy supply, drained liquidity, rising crude |
| Sameer Karyatt, DBS Bank India | About 7.70% by December | Conflict persists. |
| Tanuj Khosla, InCred | 7.50%-7.60% before year-end | Brent stays elevated. |
| Alok Singh, CSB Bank | 7.45%-7.65% | Oil stabilizes. |
| Traders cited by Reuters | 7.41%-7.50% this week | Oil, liquidity in focus |
What to Watch Next
- The 7.61% level: A sustained break could open the door to 7.70%-7.75%.
- Brent crude: Prices above $100 would keep pressure on yields.
- Diplomacy: A breakthrough could stabilize oil and limit the selloff.
- Liquidity: Tight conditions and the cancelled auction signal RBI discomfort with higher yields.
- The Fed’s tone: A hawkish signal could lift US yields and the dollar.
Bottom line: Unless crude cools or liquidity improves, bond yields look set to stay elevated into December.
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