Indian debt slides as crude surge revives rate-hike bets ahead of RBI minutes

what happened

The benchmark 6.94% 2036 bond yield rose to 7.4352% by 10 a.m. IST on Wednesday, up from 7.3920% at Monday's close. Indian debt markets were closed on Tuesday for a local holiday. Intraday, the yield touched 7.4397%, its loftiest level since March 9, 2023. One primary dealer said investors are unlikely to buy aggressively until the oil outlook becomes clearer. Brent came close to $112 a barrel on Tuesday, a five-month peak, as Red Sea shipping concerns and threats to Saudi facilities kept prices firm. India buys close to 90% of its crude abroad, leaving it highly exposed to supply disruptions. September consumer inflation accelerated to 5.54%, and economists expect October to breach the top of the central bank's tolerance band.

why it matters

The key question for markets is how the Reserve Bank of India views energy-driven inflation and how quickly it plans to lift rates. Swaps currently price in roughly 100 basis points of hikes over 12 months, including a possible 50 bp move at the December meeting. Minutes from the latest meeting are due after Wednesday's close. Overnight index swap rates, at 6.58% for one year, 6.66% for two years and 6.84% for five years, are climbing alongside oil and US Treasury yields.

market impact

Indian bonds and rupee: costlier oil feeds inflation and adds pressure on the currency and public finances

tags

instruments