G-Sec yields at three-year peak, could climb to 7.75% by December

The yield has surged 78 basis points over the past four months, almost nearing the 7.61% peak touched during the previous rate-hike cycle.

Bankers said the selloff is being driven by a combination of external and domestic factors, with crude oil emerging as the biggest risk for bond investors. Foreign portfolio investors (FPI) have sold ₹20,772 crore from Indian debt so far this fiscal year, NSDL data showed. "The rate differential between India and the US justifies higher yields. At a time when the market is struggling with heavy bond supply, liquidity is getting drained and crude oil prices are moving higher, I expect the 10-year yield to touch 7.75% by December," said Rajeev Pawar, head of treasury, Ujjivan Small Finance Bank.

India's benchmark 10-year government bond yield is expected to reach 7.75% by December. This increase is influenced by high crude oil prices and tight liquidity conditions. Persistent bond supply and expectations of further monetary tightening are driving the yield higher. Foreign portfolio investors have sold significant amounts of Indian debt, contributing to market instability. Economic concerns are spreading across emerging markets due to the interplay of oil prices and yields.

Treasury dealers said the market's earlier assumption that disruptions from the US-Iran conflict would be temporary has now given way to fears that elevated oil prices could persist through year-end, keeping inflation risks alive and delaying any meaningful decline in bond yields.

"There seems to be little respite for bond yields unless crude prices cool. This is not just a local story. It is an oil and treasury shock spreading across emerging markets," said Tanuj Khosla, MD at InCred Global Asset Management.