Souring investor sentiment followed domestic retail price data breaching the Reserve Bank of India's upper tolerance threshold, reviving bets on an upcoming December rate hike. Added pressure from climbing U.S. Treasury yields and a fresh sovereign bond auction triggered a three-day retreat in underlying prices. This broad reassessment reflects worsening market expectations for near-term interest-rate paths both locally and abroad. Specifically, the central government auctioned 340 billion rupees of the benchmark 6.94% 2036 paper, lifting its total outstanding volume to a record 2.72 trillion rupees.
Key points
Retail inflation exceeding the central bank target range has solidified expectations for…: Retail inflation exceeding the central bank target range has solidified expectations for another interest rate increase in December.
External pressures including rising U.S. Treasury yields and geopolitical tensions compou…: External pressures including rising U.S. Treasury yields and geopolitical tensions compounded domestic selling across local debt markets.
Overnight index swap rates climbed across the curve by 13 to 17 basis points, tracking th…: Overnight index swap rates climbed across the curve by 13 to 17 basis points, tracking the broader rise in bond yields.
Sources checked by our analysis pipeline: 1
The benchmark 6.94% 2036 bond yield ended at 7.3079%, up from 7.2467% on Thursday. The yield rose 12 basis points this week after plunging 22 bps last week.
Indian bonds have surrendered over half of last week's exceptional gains as investors reassess the interest-rate outlook, said Umesh Tulsyan, managing director at Sovereign Global Markets.
Indian government bonds fell for a third consecutive session, driven by inflation and interest-rate outlook concerns. The benchmark yield increased to 7.3079%, reversing much of last week's gains. Retail inflation in India accelerated, surpassing the Reserve Bank of India's target range, which raises rate hike expectations. In the US, rising Treasury yields and inflation data led to altered rate hike projections.
"The reversal has been driven by a combination of higher US Treasury yields, stronger than expected US and domestic inflation, renewed geopolitical uncertainty and caution ahead of the large government bond auction."
Earlier in the day, the central government sold 340 billion rupees ($3.61 billion) of the benchmark paper, which took its outstanding issuance to a record 2.72 trillion rupees, highest for any paper.
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