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Indian Bond Yields Rise Above 7% Amid Global Market Selloff
Indian government bonds became less attractive this week, so their yields went up.
The key 10-year yield moved above 7%.
Higher oil prices made investors worry that inflation could rise.
A selloff in global bonds also added pressure.
The United States 10-year Treasury yield moved close to 5%.
However, analysts say India does not always have to follow global bond markets.
They say India’s growth, inflation and government borrowing plans matter more.
The Reserve Bank of India previously cut rates when growth was weak.
Markets now expect Indian interest rates to rise over the next year.
India’s benchmark 10-year government bond yield rose above 7% this week.
Higher crude oil prices and a global debt-market selloff pressured Indian bonds.
The benchmark 6.94% 2036 bond yield climbed 5 basis points to 7.0233%.
Analyst Manish Banthia said domestic growth, inflation and fiscal conditions increasingly drive Indian yields.
Markets have priced in roughly 75-100 basis points of Indian rate increases over the coming year.
- Who
- Indian bond investors, the Reserve Bank of India, and fixed-income analyst Manish Banthia were central to the developments.
- What
- Indian government bond yields rose, with the benchmark 10-year yield moving above 7%.
- Where
- India’s government bond market, amid movements in global markets including the United States and Japan.
- When
- The pressure intensified this week; the Reserve Bank of India cut rates last year when growth was weak.
- Why
- Higher crude oil prices, a global bond selloff and concerns about India’s liquidity and interest-rate outlook weighed on sentiment.
Domestic fundamentals determine yields
Global markets continue to pressure bonds
Main driver of Indian yields
Domestic fundamentals determine yields
Manish Banthia said India’s growth, inflation, fiscal deficit and other domestic conditions increasingly determine bond yields.
Global markets continue to pressure bonds
The recent global debt-market selloff, higher crude oil prices and rising United States Treasury yields have pressured Indian bonds.
Relationship with global yields
Domestic fundamentals determine yields
Banthia said elevated global yields do not necessarily mean Indian yields will rise in tandem, as their historical correlation has weakened.
Global markets continue to pressure bonds
The movement of the United States 10-year yield toward 5% has renewed concerns that emerging-market bonds, including India’s, could face further pressure.
Future rate direction
Domestic fundamentals determine yields
Banthia believes global yields may have already peaked and could move lower.
Global markets continue to pressure bonds
Markets have priced in roughly 75-100 basis points of Indian interest-rate increases over the next year as domestic growth recovers.
Key facts
- Benchmark bond
- India’s 6.94% 2036 government bond
- Benchmark yield
- 7.0233%, after rising 5 basis points
- Weekly move
- The benchmark yield increased 6 basis points this week
- Five-year yield
- 6.6202%, after rising 10 basis points during the day
- United States 10-year yield
- Around 4.8%, near a 15-20 year high
- Expected Indian rate increases
- Markets have priced in roughly 75-100 basis points over the coming year
- Key domestic factors
- Growth, inflation, fiscal deficit and the Reserve Bank of India’s liquidity stance
Sources
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