India Bond Yields Rise Amid Escalating Tensions with Pakistan

On Friday morning, Indian government bond yields rose as market participants reacted nervously to rising tensions between India and Pakistan. The yield on the benchmark 10-year government bond reached a high of 6.4416% during early trade. 

As per news reports, the India-Pakistan conflict, increasing U.S. yields, and rising crude oil prices have contributed to this. Market participants expect that yields could rise further by about 10 basis points during the day. 

Swap Rates Climb Too 

 India’s Overnight Index Swap (OIS) rates also rose as investors took cautious positions. 

• The 1-year OIS rate went up by 2 basis points to 5.68% 

• The 2-year OIS rose by 3 basis points to 5.58% 

• The 5-year OIS, which is the most traded, also increased by 3 basis points to 5.71% 

The upward movement reflects growing concerns over the possibility of delays in interest rate cuts, which were expected earlier. 

Rupee, Stocks, and Bonds Decline 

The Indian rupee, stock market, and bond prices all fell after Pakistan launched several drone and missile attacks along the western border on Thursday night and Friday morning. This has made traders more risk averse. 

Impact on Bond Auctions 

Later in the day, the Indian government plans to borrow ₹320 billion ($3.7 billion) through bond auctions maturing in November 2039 and April 2065. However, the uncertainty around the border situation may reduce investor interest. Traders are already wary after a recent auction that saw unexpectedly high underwriting fees. 

RBI Offers Some Relief 

The Reserve Bank of India (RBI) plans to purchase ₹250 billion worth of bonds on Friday, which may help ease some pressure in the market. 

Long Weekend Adds to Caution 

With markets closed on Monday due to a holiday, traders are avoiding major positions ahead of the long weekend. 

Conclusion 

Tensions at the India-Pakistan border, along with global economic pressures, are causing bond yields and swap rates to rise. While the RBI’s support may offer short-term comfort, traders remain cautious due to uncertainty and geopolitical risk. 
 
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