India 10-Year Yield Surges on Outlook of Higher Bond Supply

The yield on the Indian 10-year G-Sec rose toward the 6.5% threshold in August, the highest in four months to halt its outperforming momentum since the second quarter amid the outlook of higher bond supply. Markets signaled their concerns of higher bond issuance following a weaker debt auction, due to expectations that the aggressive tariffs on India by the US will force New Delhi to increase borrowing and start a fresh round of fiscal stimulus, especially for export-oriented energy industries. US President Trump imposed tariffs of 50% on India, doubling their “reciprocal” tariff rate due to India’s continued buying and re-exporting of Russian oil. The developments offset sharper-than-expected disinflation domestically, compounding bets that the RBI will deliver another rate cut this year. Inflation fell to 1.55%, well below market expectations, to surpass the lower bound of the RBI’s inflation tolerance band of 2% for only the third occasion since adopting the target in 2016.