Global fund selling of Indian bonds hits 5-month high; yields remain above 7%

Indian government bonds opened largely steady on September 16 as investors remained cautious ahead of the US Federal Reserve’s interest-rate decision, while elevated crude oil prices and rising global bond yields weighed on market sentiment. Foreign investors’ recent selling of Indian debt has also added to pressure on the domestic bond market, according to Bloomberg News.

The benchmark 10-year government bond yield was trading at 7.0739%, compared with 7.0727% at the previous close on Tuesday.

Investor focus remained firmly on the US Federal Reserve’s monetary policy decision expected later in the day. Market participants were assessing the possibility of a 25-basis-point rate hike, which could influence global borrowing costs and bond yields.

According to the CME FedWatch, there was a nearly 90% probability of a 25-basis-point rate hike. Expectations surrounding the Fed have kept investors cautious across emerging-market debt markets, as higher US rates can influence foreign capital flows into developing economies.

Brent crude prices, meanwhile, had climbed to around $108 a barrel amid a worsening situation in the oil-rich West Asia region. Higher crude prices are a concern for India because the country is heavily dependent on imports to meet its energy requirements. An increase in oil prices can also add to inflationary pressures and affect the outlook for interest rates.

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Rising US Treasury yields have further added to the pressure, with the benchmark 10-year US Treasury yield moving above the 5% threshold, according to the market report.

Foreign investors step up bond selling

Foreign fund flows have emerged as another concern for Indian debt markets. Global funds sold a net $503.1 million of Indian debt on September 11, according to Securities and Exchange Board of India (SEBI) data cited by Bloomberg News. This was the highest single-day net selling since April 2, marking a five-month high.

Global funds also sold a net $102.1 million of Indian equities on September 11, according to Bloomberg New. The selling comes as investors reassess emerging-market assets amid uncertainty over US monetary policy, higher crude prices and movements in global bond yields.

RBI liquidity operation in focus

Domestic bond sentiment was also affected after the Reserve Bank of India announced an open market operation (OMO) sale of government securities last week to absorb excess banking-system liquidity.

The rupee, however, opened marginally stronger. It gained 7 paise to ₹95.89 against the US dollar, compared with the previous close of ₹95.95.

Investors are also watching the RBI’s upcoming monetary policy review for signals on the domestic interest-rate trajectory. Market participants will assess whether changes in global rates, crude prices, inflation risks and liquidity conditions could influence the central bank’s policy stance.

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