28.01.202607:45:27UTC+00India 10Y Yield Hits Over 10-Month High

The yield on India's 10-year Government Security (G-Sec) increased to approximately 6.7%, marking its highest rate in over ten months. This spike is primarily attributed to ongoing concerns about supply, which continue to overshadow support from the central bank. The market remains fixated on the borrowing forecast for the fiscal year 2027, anticipated to reach a record INR 16-17.5 trillion. The supply factor is further amplified by significant maturities amounting to roughly 5.5 trillion rupees coupled with substantial state issuance, thus sustaining the upward momentum in yields. Additionally, escalating short-term interest rates and reduced private sector demand are contributing to the increased borrowing costs. In an attempt to mitigate these pressures, the Reserve Bank of India (RBI) advanced its open market operations by a week, purchasing around INR 1 trillion in two phases, which provided temporary respite and incited early trading short-covering. Moreover, the RBI has announced plans to purchase additional bonds valued at $23.6 billion in the following weeks to alleviate liquidity challenges. Investors remain vigilant as the federal budget announcement on February 1 approaches, closely observing for any changes in fiscal strategy and borrowing plans.