India's benchmark 10-year bond yield climbed 6.5 basis points to touch 7.1848 percent, marking its highest level since April 2024 as aggressive central bank debt sales and an escalating global debt selloff rattled domestic fixed-income markets. Stop-loss selling swept through bond portfolios and overnight indexed swaps, with traders warning that yields could soon test the 7.25 percent threshold.
The sharp market reaction followed New Delhi's release of its October-March borrowing calendar, which unsettled investors by shifting debt issuance away from liquid five- and 10-year bonds toward 15-year and ultra-long securities. Although the headline gross borrowing target came in marginally below prior projections, the altered maturity mix heightened duration risk and exposed investors to steeper mark-to-market losses amid rising interest rate expectations.
According to ETBFSI / The Economic Times, a federal finance ministry official stated that net borrowing remains at budgeted levels to preserve fiscal prudence, explaining that focusing on longer maturities increases weighted average maturity and mitigates rollover risk.
The Reserve Bank of India completed 1 trillion rupees in net bond sales this financial year, marking its largest annual net debt sale in over a decade. Market analysts note that projections suggest this net sales figure could double by December as the monetary authority moves aggressively to drain surplus liquidity from the banking system and combat inflationary pressures. Baroda BNP Paribas Mutual Fund noted that it has shifted to a bearish duration stance, citing robust economic growth, food and energy inflation risks, and the central bank's policy pivot from variable-rate reverse repo operations to outright open market bond sales.
ICBC treasury head Alok Sharma anticipates further open market operations sales totaling 1 trillion rupees or a cash reserve ratio increase. Additionally, Invesco Mutual Fund head of fixed income Vikas Garg noted that heightened supply and state issuance may maintain elevated term premiums.
According to ETBFSI / The Economic Times, the Reserve Bank of India drained liquidity after previously allowing lenders to raise US dollars via a special window that bolstered FX reserves but pushed overnight rates below the policy rate.
Traders are increasingly pricing in an interest rate increase from the central bank, which would mark its first tightening move since February 2023. These domestic tightening pressures coincided with a bruising global debt selloff. The 10-year US Treasury yield climbed 5 basis points to reach 5.23 percent, hitting multi-decade highs, while Brent crude oil prices gained 4 percent to trade above $108 per barrel amid ongoing supply disruptions in West Asia.
Overnight indexed swap rates surged across the curve in tandem with rising domestic and international bond yields. The one-year OIS rate increased by 7.5 basis points to 6.2350 percent, the two-year rate jumped 8.5 basis points to 6.45 percent, and the five-year rate surged 10 basis points to settle at 6.72 percent. Market participants reported that tight spreads over shorter maturities may limit further curve steepening, but persistent supply headwinds and heavy government issuance continue to weigh heavily on market sentiment.
