Indian government bonds plunged in early deals on Thursday, tracking a spike in U.S. Treasury yields and higher oil prices, which have strengthened bets that the local central bank will adopt a hawkish stance at its upcoming monetary policy meeting.
The benchmark 6.94% 2036 bond yield was at 7.0914% as of 10:15 a.m. IST, after ending at 7.0447% on Wednesday. The yield hit 7.0994%, its highest since September 15, earlier in the session. Bond yields move inversely to prices.
US Treasury yields surged to their highest levels since July 2007 on Wednesday, after a robust purchasing managers' report reignited fears of stubborn inflation.
Brent crude edged lower in Asian trade on Thursday after Iran signalled it remained open to diplomacy to end the US-Iran war, but prices stayed elevated following an about 4% rise in the previous session.
India, which imports roughly 90% of its crude oil needs, is particularly exposed to swings in global oil prices, with higher oil prices fuelling inflation concerns and expectations of an interest rate hike in the next two weeks.
Policy tightening bets in India have hardened after August retail inflation stood at 4.82% and the Federal Reserve raised interest rates by 25 basis points last week, its first such move since 2023.
The Reserve Bank of India's monetary policy decision is due on October 7, with most market participants expecting a repo rate hike.
"The RBI's inflation mandate has likely reinforced the push to drain excess liquidity, with the odds of a rate hike at the October meeting on the rise," DBS said in a note.
RATES
Overnight indexed swap rates rose sharply, tracking bond yields in India and the US.
The one-year rate was at 6.16%, the two-year rate jumped to 6.38%, and the five-year rate surged to 6.64%.
