Indian government bond yields are edging towards the closely watched 7% level as investors rethink where interest rates are heading. Hawkish signals from the Reserve Bank of India and the US Federal Reserve have combined with rising oil prices and geopolitical tensions in West Asia to pressure debt markets. Global bonds are feeling the strain too, turning the latest sell-off into a much broader market move.
RBI Rate Hike Expectations
India’s benchmark 10-year government bond yield ended Tuesday at 6.96%, its highest level since June and more than 10 basis points above where it stood a week earlier. Since the RBI released minutes from its August Monetary Policy Committee meeting, the yield has climbed roughly 15 basis points.
Those minutes sounded more hawkish than traders had expected. RBI Governor Sanjay Malhotra raised the possibility of policy “recalibration”, while Deputy Governor Poonam Gupta pointed to the case for higher rates.
Expectations are now shifting quickly. Gopal Tripathi, treasury head at Jana Small Finance Bank, said the near-term yield curve suggests a 50-basis-point increase this year is the most likely scenario.
Swap markets are sending an even stronger signal. The one-year overnight index swap has risen around 20 basis points in a week to 6.01%, while the five-year rate gained 11 basis points to 6.51%.
Yields rise globally
India is hardly alone in facing higher borrowing costs. US yields moved upwards following hawkish comments from Federal Reserve Chairman Kevin Warsh, while renewed conflict in the Middle East pushed energy prices higher and added to inflation concerns.
Japan’s 10-year government bond yield reached 3% for the first time since 1996. UK 30-year yields climbed to their highest point since 1998, while the 10-year US Treasury yield returned to levels last seen in January 2025.
Traders now see 7% as the crucial threshold for Indian bonds. Dealers expect the 10-year yield to remain around 6.95% to 7% unless another inflation shock arrives or clearer evidence emerges that the RBI is preparing to raise rates.
