India's 10-year government bond yield hits 2½-year high as oil spikes and rupee slides

India’s sovereign bond market saw the 10-year yield climb to 7.19% on Monday, a two-and-a-half-year high, while the five-year note rose to 6.88%. The surge adds to a 52-basis-point increase since the West Asia conflict erupted in late February and a 60-basis-point rise for the five-year series since the US-Iran war began. Market participants attributed the weakness to a heavy duration-heavy borrowing calendar for the second half of FY27, and stop-loss orders were activated when the 10-year slipped past the 7.14-7.15% threshold as Brent crude jumped about $3 to near $107 a barrel.

Traders now project the benchmark yield could reach 7.25% before the RBI’s monetary-policy review next week, with some betting on the first rate hike of one outlet cycle. The rupee fell to about 95.99 per dollar, extending a 6.37% depreciation for the calendar year and a 5.22% slide since the Iran war began. Meanwhile, the RBI’s final ₹25,000 crore open-market operation attracted bids of ₹67,655 crore, bringing total OMO sales to ₹1 trillion for the month as it seeks to mop up surplus liquidity, which fell from a record ₹11.16 trillion to ₹4.31 trillion by late September. The overnight weighted average call rate settled at 5.12%, down from the previous 5.20%.