India 10-year yield logs biggest weekly surge since RBI’s surprise hike in May 2022

Mumbai’s benchmark 6.48% 2035 bond yield ended at 6.9419%, its highest level for a benchmark 10-year note since July 25, 2024, amid government bonds plunging on Friday. The move followed New Delhi’s fuel excise duty cut on Thursday, which clouded the fiscal outlook and drove oil-driven anxiety. The central bank raised interest rates in May 2022, marking a surprise rate hike during scheduled policy meetings.

The benchmark yield rose by 20 basis points, its biggest weekly jump since week ended May 6, 2022. This surge came as fuel prices remain volatile due to supplies being choked by the Middle East war. A government official said the cut in special excise duty on petrol and diesel would cost the government 70 billion rupees ($739.33 million) per fortnight.

Analysts estimate that this move will entail a fiscal hit of between 1.5 trillion rupees to 1.75 trillion rupees for fiscal year 2027. Elevated oil prices, hovering around $110 per barrel, pose a significant threat to India, the world’s third-largest crude importer.

Brent crude oil briefly eased to below $100 earlier in the week but has now rebounded, with analysts warning that higher oil prices will seep into broader inflation baskets if oil continues to trade higher. Alok Sharma, head of treasury at ICBC, Mumbai, said this could have significant implications for India’s economy.

States have been selling debt worth nearly 1 trillion rupees in the past week, amid waning investor demand and strain on bonds as interest rates set by the central bank rate India’s overnight index swap. The impact of these developments will be closely watched in coming days, particularly how it affects government finances.