India bonds buckle for fourth straight month on oil's climb
TLT•Indian government bonds fell for a fourth straight month in October as rising oil prices and tighter monetary policy stoked inflation concerns. The benchmark 2036 bond yield rose 22.5 basis points during the month to 7.4139%.
1. October bond losses
Indian government bonds ended October lower for a fourth consecutive month. The benchmark 6.94% 2036 bond yield rose 2.5 basis points on Friday to 7.4139%, bringing its monthly increase to 22.5 basis points. Brent crude was up nearly 14% in October and reached $117.55 on Friday, its highest intraday level since April 30.
2. Policy and market pressure
Foreign investment in index-eligible Indian bonds fell to a more than four-month low. The Reserve Bank of India raised its policy rate to 5.50% earlier in October, its first increase in nearly four years, and adopted a “calibrated tightening” stance. Its rupee-support operations and open-market sales have also reduced liquidity. The 10-year yield fell about 6 basis points this week, after rising more than 70 basis points over the previous 10 consecutive weeks.
3. Swap rates rise
Overnight indexed swaps recorded their steepest monthly climb of FY27 as bets on further RBI tightening increased. In October, the one-year rate rose 51 basis points to 6.72%, the two-year rate gained 33 basis points to 6.74%, and the five-year rate advanced 21 basis points to 6.86%. Ketan Parikh of ICICI Life Insurance said the 10-year government bond yield could eventually reach 7.75% if geopolitical conflicts and foreign portfolio investment flows do not turn around.
