Indian government bonds ended a bruising October with fresh losses on Friday, marking a fourth straight monthly decline as oil's surge rekindled inflation fears and the central bank's broader tightening campaign rattled the market.
The benchmark 6.94% 2036 bond yield rose 2.5 basis points to 7.4139%, advancing 22.5 bps in October. Bond yields move inversely to prices.
Brent crude is poised for a fourth monthly advance, up nearly 14% in October, clouding the economic outlook for the world's third-largest oil importer.
It surged to $117.55 on Friday, its highest intraday level since April 30, as investors priced in a potential escalation of the US-Iran conflict after the US midterm elections next week.
Foreign money also continued to flow out of the Indian bond market, with exposure to index-eligible notes falling to a more than four-month low.
"If we do not see a turnaround in geopolitical conflicts or FPI flows, the rupee could remain under pressure and the 10-year G-Sec could eventually move higher to 7.75%," said Ketan Parikh, fixed-income head at ICICI Life Insurance.
Week-on-week, the 10-year yield fell about 6 bps after gaining more than 70 bps in the previous 10 straight weeks, a streak not seen since at least 1998, the earliest data available on LSEG.
Investors lapped up Indian bonds this week, after the 10-year yield twice approached but did not breach the pivotal upside level of 7.50%, while the Federal Reserve's marginally dovish rate hold also lent support.
Earlier this month, the RBI raised its policy rate to 5.50%, its first increase in nearly four years, and adopted a "calibrated tightening" stance.
Its rupee-support operations and open-market sales have also siphoned liquidity, bruising bonds and lifting expectations for a larger December hike.
RATES
Short-term overnight indexed swaps logged their steepest monthly climb of FY27 on rising RBI-tightening bets.
In October, the one-year OIS scaled 51 bps to 6.72%, the two-year rate rose 33 bps to 6.74%, and the five-year rate gained 21 bps to 6.86%.
