India bonds extend weekly slide; struggle to shake off RBI hike, hawkish stance shift

Indian government bonds recorded an eighth consecutive weekly decline as higher oil prices and a hawkish turn by the central bank weighed on investor demand, pushing the 10-year benchmark yield higher. The 6.94% 2036 bond closed Friday at 7.2994%, up from 7.2868% on Thursday, a weekly rise of 9 basis points. Business Recorder reported that the yield has risen 45 basis points cumulatively over the seven weeks since August 17.

The Reserve Bank of India lifted its repo rate by 25 basis points to 5.50% and changed its stance from neutral to 'calibrated tightening', a signal that more increases are possible. Most economists now see the terminal repo rate reaching at least 6.00%, while Standard Chartered Bank and Goldman Sachs forecast 6.25%. Brent crude rose above $105 a barrel as attacks on vessels intensified, then eased after Donald Trump said Washington was holding productive talks with Iran.

Higher oil prices threaten India's public finances and could lift headline inflation beyond the direct effect of fuel costs, according to the report. Overnight indexed swap rates were little changed on the week as softer US yields counterbalanced the policy shift, with the one-year rate at 6.24%, the two-year at 6.44% and the five-year at 6.7250%.