Indian bond yields snap 7-week falling streak due to border conflict

The benchmark 10-year yield rose 3 basis points this week, after falling for seven weeks straight.

The India-Pakistan conflict took a turn for the worse this week, catching traders off guard and triggering a frenzy across various financial markets.

Foreign banks sold a record amount of Indian government bonds on Thursday as well as this week, while primary dealers’ sales were the highest in any week since September 2024.

The Indian rupee declined 0.9% this week, despite being supported by the Reserve Bank of India, as per traders. The stock market lost $83 billion in two sessions.

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“The selling pressure in the government bond market is understandable, as we previously observed profit booking around the 6.29% level (old benchmark). This pressure has intensified further in response to escalating tensions,” said Mataprasad Pandey, vice president at financial advisory firm Arete Capital. “However, I do not expect this selloff to persist for long. Once tensions begin to de-escalate, support should return and yields are likely to improve accordingly.” The debt market caught a break late on Friday with lower cut-offs in RBI’s open market purchase (OMO) and a successful debt sale.

That helped the benchmark yield reverse from a high of 6.44% to end lower at 6.3750%, compared with its previous close of 6.3976%.

The debt market will remain shut on Monday due to a local holiday.

RATES
The overnight index swap (OIS) rates recovered after rising sharply on Thursday. Traders began buying government securities by late Friday, which supported a receiving bias, traders said.

The one-year rate fell 3 bps to 5.63%, while the two-year dropped 2 bps to 5.53% and the most liquid five-year declined to 5.65%.