10‑Year Indian Bond Yields Surge to Levels Not Seen Since Early 2023

Government bond yields opened on a decidedly upward note on Monday, as investors digested the RBI’s newest liquidity‑draining steps.

At the opening bell, the yield on the 2036 benchmark security – which sits at a 6.94 % coupon – jumped to 7.3553 %, up from Friday’s close of 7.2994 %. A sharp rise, indeed, and one that has caught many market watchers by surprise.

What triggered this sudden spike? Two things, really. First, the RBI announced a Rs 25,000‑crore open‑market operation (OMO) slated for October 13, meaning banks and other investors will have to cough up cash to buy the government securities on offer. Second, the central bank raised the minimum daily cash‑reserve ratio (CRR) for banks from 90 % to 99 %, effective October 16. While the overall CRR figure stays the same, the higher daily floor squeezes banks’ flexibility in moving money around.

“The market was already pricing in the recent rate hike,” said a dealer at a primary dealership. “Now the OMO sale adds fresh supply at a time when sentiment is fragile, so investors naturally demand a higher yield.”

It’s worth noting that this is the eighth straight week of rising yields. The 10‑year benchmark climbed about nine basis points last week, landing at 7.2994 % on Friday, after the RBI’s October 7 decision to lift the repo rate by 25 basis points to 5.50 % and shift its stance from “neutral” to “calibrated tightening.” Over the past seven weeks, the yield has risen roughly 45 basis points, a move driven not just by policy but also by higher oil prices and lingering doubts about the interest‑rate trajectory.

Historically, we’ve seen similar numbers during the previous tightening cycle. The yield touched 7.46 % in late February‑early March 2023 and hovered around 7.35 % in late March before easing a bit. Back in November 2022, it was trading in the 7.37‑7.44 % band as markets adjusted to earlier RBI hikes.

“The change in stance makes it hard to rule out another rate rise, especially if inflation stays stubborn,” observed a treasury dealer at a major bank. “Until we get clearer signals on the liquidity pull‑back and the rate path, investors will stay cautious about adding duration.”

All eyes now turn to Tuesday’s OMO auction and the practical impact of the tighter CRR on banking‑system liquidity. Those will likely set the tone for where yields head next.