Indian bonds fall as state borrowing spooks markets
Indian government bonds dropped on Friday, ending a three-day rally, as worries grew over how much new state debt the market can handle.
The 10-year yield climbed to 6.66%, and the rupee slipped to an all-time low of 91.94 against the dollar—just as everyone's watching for big moves ahead of next month's federal budget and RBI policy update.
Why does this matter?
Higher bond yields mean it's getting more expensive for both the government and companies to borrow money, which could make loans pricier for everyone.
States are planning a ₹398 billion bond auction next week—more than traders expected—which only adds to the pressure.
What's behind the stress?
The Reserve Bank of India did not make any bond purchases on-screen during the week ended January 16, official data showed, raising questions about how it'll handle this liquidity crunch.
As Debendra Kumar Dash, senior vice president of treasury at AU Small Finance Bank, put it, "The question is how will the RBI bridge this liquidity crunch and if it will do further OMOs, which is crucial for the market,".
Meanwhile, rates tied to short-term borrowing are hitting multi-month highs, signaling that markets are definitely feeling the squeeze.