Indian bond yields have scope to rise further as investors weigh tighter policy
and growing fiscal worries; foreign outflows and a weaker rupee have added
pressure. The benchmark 10-year yield is up roughly 34bp to 7% since the
outbreak of conflict in Iran three months ago. IndusInd Bank forecasts the
10-year at 7.45% by end-2026; Kotak Mahindra sees a trading range of 6.8–7.4%
through March. The Reserve Bank of India faces pressure to tighten at Friday’s
meeting after higher oil costs and currency weakness lifted inflation risks,
although most economists expect a hold. Derivatives show more aggressive
pricing: five-year interest-rate swaps have risen over 60bp since the conflict
began. Shorter-dated government bonds led the sell-off, with the five-year yield
up 54bp. Market participants will watch for any hawkish shift; Tata AMC and
Bandhan AMC expect about 75–100bp of hikes in this cycle.
