US Treasury selloff hits Indian bonds, rupee

Indian government bonds edged lower early Wednesday as rising U.S. Treasury yields dimmed the appeal of emerging-market debt and spurred outflows, weighing on the rupee. The benchmark 6.48% 2035 bond yield was up 1 basis point at 7.1205% by 10:45 a.m. IST. Bond yields move inversely ‌to prices.

The ⁠30-year ⁠U.S. Treasury yield hit a 19-year high on Tuesday amid a global long-bond selloff, while the 10-year yield touched a 16-month high of 4.6690%. The yield premium on Indian bonds narrowed to 244 basis points, its lowest in two months.

Indian shares and the rupee also slipped as higher global yields and Iran war uncertainty triggered outflows ⁠from emerging markets.

The ‌Nifty 50 fell 0.41% to 23,521, while the rupee hit another record low of 96.96 per dollar.

Traders said India ⁠is staring at a steep balance of payments deficit this fiscal year. India’s balance of payments is currently tracking a deficit of over $70 billion in FY27, due to a widening current account deficit (we expect 2.4% of GDP in FY27) and weak net capital inflows, Nomura said in a note. On the war front, two Chinese tankers laden with oil exited the Strait of ‌Hormuz on Wednesday, shipping data showed, brightening hopes that the U.S.-Israeli conflict with Iran may soon be resolved after positive comments from the U.S. ⁠president and his deputy. The benchmark Brent crude still stayed around $111 per barrel in Asian trade. Traders are also expecting the RBI’s surplus transfer to the government this week, which could shore up liquidity.

RATES

India’s overnight index swap rates edged higher tracking U.S. yields. The one-year swap was flat at 6.2650%, while the two-year rate rose 2.75 bps to 6.5425% and The five-year rate was up 3.25 bps at 6.8725%.

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