Indian Bonds Face Pressure as RBI’s Forex Curbs Stoke Rate Risk

Indian bonds may be heading into a challenging stretch after the Reserve Bank of India’s dramatic move to cap onshore currency wagers raises the possibility of stronger measures — including possible interest rate hikes — to support the rupee.

The 10-year yield rose nine basis points to 7.04% on Monday, breaking above the 7% level that the central bank had strongly defended with its debt purchases just last month. This is the highest level since June 2024, and analysts expect yields to rise as high as 7.25% in the coming weeks. The local bond and currency markets were shut Tuesday and Wednesday for a holiday.