Global investment funds have significantly increased their selling of Indian government bonds, recording the highest single-day net outflow in five months. Data indicates that foreign funds offloaded a net $503.1 million in Indian debt on September 11, intensifying pressure on the domestic bond market.
Yields Remain Above 7% Amid Global Headwinds
The benchmark 10-year Indian government bond yield was trading at 7.0739% on Wednesday, September 16, slightly up from 7.0727% the previous day. This persistent pressure on yields is attributed to a confluence of global factors and domestic concerns.
US Federal Reserve's Rate Decision Looms
Investor caution is primarily driven by the impending interest-rate decision from the US Federal Reserve. Market participants are assessing a nearly 90% probability of a 25-basis-point rate hike, which could significantly impact global borrowing costs and influence capital flows to emerging markets like India.
Rising Crude Oil Prices and Global Bond Yields Add Pressure
Further exacerbating market sentiment are soaring Brent crude prices, which have climbed to around $108 a barrel due to a worsening situation in the West Asia region. As a major oil importer, India is highly vulnerable to higher crude prices, which can fuel inflation and affect the domestic interest-rate outlook. Additionally, rising US Treasury yields, with the benchmark 10-year yield moving above the 5% threshold, are also contributing to the pressure on Indian bonds.
Foreign Investors Also Sell Equities, RBI Steps In
Beyond debt, global funds also divested a net $102.1 million from Indian equities on September 11. This broad-based selling reflects investors' reassessment of emerging-market assets amidst uncertainty regarding US monetary policy and global commodity prices.
Domestically, the Reserve Bank of India (RBI) has also influenced bond sentiment by announcing an open market operation (OMO) sale of government securities last week. This measure aims to absorb excess liquidity from the banking system. Investors are closely watching the RBI's upcoming monetary policy review for signals on India's own interest-rate trajectory, considering global rate changes, crude prices, inflation risks, and liquidity conditions.
Despite the bond market pressures, the Indian rupee opened marginally stronger, gaining 7 paise to trade at ₹95.89 against the US dollar.