Bond Yields Climb to 7.5% in India for First Time in Three Years

(Bloomberg) -- India's sovereign bond yields breached the 7.5% level for the first time in three years as the central bank's rate-setting panel began its three-day meeting.

The benchmark 10-year yield rose as much as four basis points to 7.5%, a level last seen in 2019. Yields have jumped by more than 100 basis points in 2022 amid global tightening and as the Reserve Bank of India turned hawkish with an out-of-turn rate hike last month.

Bond traders are concerned higher oil prices will add to India's already elevated inflation and push the central bank toward more aggressive rate hikes. The nation relies on imports to meet about three quarters of its oil needs, and higher prices threatens to accelerate inflation that has stayed above the higher end of the RBI's 2%-to-6% target for four consecutive months. 

India's swap curve is pricing in at least 50 basis points of rate hikes at every scheduled meeting this year before slowing to 25 basis points in 2023, Barclays strategists including Ashish Agrawal wrote in a note. “We are positioned for underdelivery of hikes but weak demand for duration.” 

The RBI will decide on its rate decision on Wednesday and a majority of economists surveyed by Bloomberg predict a 50 basis-point increase in the repurchase rate.

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