India’s treasury bill yields hit four-year high premium over repo rate amid rate hike bets
India’s short-term government borrowing costs have surged to their highest levels in 18 months, with treasury bill yields widening their premium over the repo rate to a four-year high. The spike reflects rising expectations of further RBI rate hikes amid persistent inflation risks and hawkish policy signals.
- Oct 14, 2026,
- Updated Oct 14, 2026 4:13 PM IST
India’s short-term government borrowing costs surged at a treasury bill auction on Wednesday, with the premium over the Reserve Bank of India’s (RBI) policy repo rate reaching its highest level in four years as investors anticipated further monetary tightening, Reuters reported.
The RBI raised interest rates for the first time in nearly four years last week and shifted its policy stance, signalling the possibility of further hikes. Governor Sanjay Malhotra’s remarks on Tuesday that monetary policy cannot be viewed independently of financial stability further strengthened expectations of tighter policy.
The government sold 182-day and 364-day treasury bills at cutoff yields of 6.29% and 6.49%, respectively, their highest levels in around 18 months. Yields on both instruments rose by more than 20 basis points from a week earlier.
The premium over the 5.5% repo rate widened to 79 basis points for six-month bills and 99 basis points for one-year bills, levels last recorded in November 2022.
“A clearly hawkish policy guidance and latest commentary has raised terminal rate expectations on the back of resilient growth and higher inflation,” said VRC Reddy, treasury head at Karur Vysya Bank.
India’s bond yield curve has also been flattening as short-term yields rise faster than longer-term rates. Over the past two weeks, the one-year government bond yield has increased by 31 basis points, compared with a 26-basis-point rise in the five-year yield and a 20-basis-point increase in the 10-year yield.
Market participants expect the RBI to continue raising rates as inflationary pressures persist. Higher crude oil prices remain a key risk, given India’s dependence on energy imports and the potential for elevated fuel costs to feed into broader inflation.
“I see another 50 bps of rate hikes this fiscal and if risks from higher oil prices materialise, it may lead to persistently higher inflation beyond the RBI's comfort zone and compel the RBI to hike rates even in FY28,” said Mandar Pitale, head of treasury at SBM Bank (India).
Pitale added that bond yields across the three maturities could converge at the peak of the monetary tightening cycle, reflecting expectations that policy rates may remain elevated for longer.
The sharp rise in treasury bill yields indicates that investors are adjusting borrowing-cost expectations in response to the RBI’s hawkish signals and the risk of a prolonged inflation challenge.
India’s short-term government borrowing costs surged at a treasury bill auction on Wednesday, with the premium over the Reserve Bank of India’s (RBI) policy repo rate reaching its highest level in four years as investors anticipated further monetary tightening, Reuters reported.
The RBI raised interest rates for the first time in nearly four years last week and shifted its policy stance, signalling the possibility of further hikes. Governor Sanjay Malhotra’s remarks on Tuesday that monetary policy cannot be viewed independently of financial stability further strengthened expectations of tighter policy.
The government sold 182-day and 364-day treasury bills at cutoff yields of 6.29% and 6.49%, respectively, their highest levels in around 18 months. Yields on both instruments rose by more than 20 basis points from a week earlier.
The premium over the 5.5% repo rate widened to 79 basis points for six-month bills and 99 basis points for one-year bills, levels last recorded in November 2022.
“A clearly hawkish policy guidance and latest commentary has raised terminal rate expectations on the back of resilient growth and higher inflation,” said VRC Reddy, treasury head at Karur Vysya Bank.
India’s bond yield curve has also been flattening as short-term yields rise faster than longer-term rates. Over the past two weeks, the one-year government bond yield has increased by 31 basis points, compared with a 26-basis-point rise in the five-year yield and a 20-basis-point increase in the 10-year yield.
Market participants expect the RBI to continue raising rates as inflationary pressures persist. Higher crude oil prices remain a key risk, given India’s dependence on energy imports and the potential for elevated fuel costs to feed into broader inflation.
“I see another 50 bps of rate hikes this fiscal and if risks from higher oil prices materialise, it may lead to persistently higher inflation beyond the RBI's comfort zone and compel the RBI to hike rates even in FY28,” said Mandar Pitale, head of treasury at SBM Bank (India).
Pitale added that bond yields across the three maturities could converge at the peak of the monetary tightening cycle, reflecting expectations that policy rates may remain elevated for longer.
The sharp rise in treasury bill yields indicates that investors are adjusting borrowing-cost expectations in response to the RBI’s hawkish signals and the risk of a prolonged inflation challenge.