Indian government bonds ended a bruising October with fresh losses on Friday, marking a fourth straight monthly decline as oil's surge rekindled inflation fears and the central bank's broader tightening campaign rattled the market.
The benchmark 6.94% 2036 bond yield rose 2.5 basis points to 7.4139%, advancing 22.5 bps in October. Bond yields move inversely to prices.
Brent crude is poised for a fourth monthly advance, up nearly 14% in October, clouding the economic outlook for the world's third-largest oil importer.
Indian government bonds ended October with losses, marking a fourth consecutive decline in bond yields. Brent crude oil prices surged, raising inflation concerns for the country. The Reserve Bank of India raised its policy rate for the first time in nearly four years this month. Foreign investments in Indian bonds fell to a four-month low, causing further concerns about the rupee's performance.
It surged to $117.55 on Friday, its highest intraday level since April 30, as investors priced in a potential escalation of the US-Iran conflict after the US midterm elections next week.
Foreign money also continued to flow out of the Indian bond market, with exposure to index-eligible notes falling to a more than four-month low.
"If we do not see a turnaround in geopolitical conflicts or FPI flows, the rupee could remain under pressure and the 10-year G-Sec could eventually move higher to 7.75%," said Ketan Parikh, fixed-income head at ICICI Life Insurance.
Week-on-week, the 10-year yield fell about 6 bps after gaining more than 70 bps in the previous 10 straight weeks, a streak not seen since at least 1998, the earliest data available on LSEG.Investors lapped up Indian bonds this week, after the 10-year yield twice approached but did not breach the pivotal upside level of 7.50%, while the Federal Reserve's marginally dovish rate hold also lent support.
Earlier this month, the RBI raised its policy rate to 5.50%, its first increase in nearly four years, and adopted a "calibrated tightening" stance.
Its rupee-support operations and open-market sales have also siphoned liquidity, bruising bonds and lifting expectations for a larger December hike.
RATES
Short-term overnight indexed swaps logged their steepest monthly climb of FY27 on rising RBI-tightening bets.
In October, the one-year OIS scaled 51 bps to 6.72%, the two-year rate rose 33 bps to 6.74%, and the five-year rate gained 21 bps to 6.86%.
