India’s 10-year bond yield may rise to 7.6% as US Treasury yields remain elevated: SBI Research

India’s 10-year government bond yield could rise to 7.6% as global bond markets remain volatile amid elevated US Treasury yields and persistent inflation concerns, according to SBI Research.

In its Ecowrap report dated October 15, the research arm of State Bank of India said India’s 10-year government security (G-sec) yield stood at around 7.38%. The projected increase could help improve price discovery in the domestic bond market, the report said.

The US 10-year Treasury yield witnessed a sharp intraday spike on October 14, crossing 5.32% after higher-than-expected inflation data revived expectations of further monetary tightening by the US Federal Reserve. The yield subsequently eased to around 5.19%, but the episode highlighted growing nervousness in global bond markets.

SBI Research said global bond yields could edge higher as investors assess inflation trends and the outlook for monetary policy. The upcoming meeting of the Federal Open Market Committee (FOMC) remains an important event for financial markets.

India-US yield spread narrows

The spread between India’s and the US’s 10-year government bond yields stood at approximately 220 basis points, significantly below the historical average of around 408 basis points over the past 25 years, according to SBI Research.

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The report said the Reserve Bank of India (RBI), in conjunction with the government, had done a notable job of managing domestic bond yields. However, continued movements in US Treasury yields could influence global borrowing costs and investor sentiment.

A rise in government bond yields generally translates into lower prices for existing fixed-rate bonds, as newer securities may offer higher returns. For investors holding bonds or debt mutual funds, yield movements can therefore affect portfolio valuations, particularly when interest rates rise sharply.

Global uncertainty clouds bond outlook

SBI Research said persistent geopolitical uncertainties, elevated US yields and evolving inflation dynamics could keep global financial markets turbulent. It also highlighted the need for policy measures to address structural issues affecting capital flows and domestic borrowing avenues.

The report called for greater clarity on taxation relating to government securities and external commercial borrowings (ECBs), arguing that further government action could deepen domestic borrowing markets and support capital flows.

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For the Indian bond market, the projected rise in the 10-year yield to 7.6% will be an important level to watch. Higher yields could increase borrowing costs for the government and other issuers, while changes in bond prices could affect fixed-income investors.

SBI Research’s projection reflects its assessment of market conditions and should not be interpreted as a confirmed outcome. The trajectory of domestic yields will depend on global bond-market developments, inflation expectations and monetary policy decisions.

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