Indian Government Bond Yields Rise as Caution Grows Following RBI Remarks

Indian Government Bond Yields Rise as Caution Grows Following RBI Remarks

Indian government bond yields closed higher on Monday, reflecting cautious sentiment after the Reserve Bank of India's (RBI) Governor indicated that discussing interest rate cuts at this stage would be premature and risky. The benchmark 10-year bond yield ended at 6.8293%, up from the previous close of 6.8193%.

The rise in yields follows a jump in late trading on Friday and a continued upward trend in Monday's afternoon session. Governor Shaktikanta Das emphasized that while inflation is expected to moderate, any consideration for rate cuts would only occur once the RBI has confidence that inflation is consistently aligned with its medium-term targets.

Earlier this month, the RBI shifted its monetary policy stance to "neutral." The minutes from the latest meeting will be released after market hours on Wednesday. In a notable development, bond yields initially declined due to Indian states' plans to raise 81 billion rupees ($963.79 million) through bond sales on Tuesday, a sharp decrease from the previously scheduled 296 billion rupees.

The RBI had refrained from bond sales in two of the three weeks leading up to October 11, and traders are skeptical about further sales in the near future. Meanwhile, the yield on 10-year U.S. Treasury bonds surpassed 4.10% during Asian trading hours, as investors adjusted their expectations regarding the Federal Reserve's approach to interest rates. Interest rate futures suggest a 94% probability of a 25-basis-point cut by the Fed in November.

VRC Reddy, treasury head at Karur Vysya Bank, noted that there was limited immediate buying interest from traders, particularly after the RBI's commentary reduced the likelihood of a rate cut in December.