Government bond yields rise to 10-month high tracking US Treasury yields

India's benchmark 10-year government bond yield rose to a 10-month high of 6.68% amid rising US Treasury yields, while markets await cues from the state bond auction

Government bond yield rose to around 10-month high on Monday tracking the rise in US Treasury yields, said dealers.

 

The yield on the benchmark 10-year government bond settled at 6.68 per cent, highest since May 17, 2025, against the previous close of 6.67 per cent.

 

“The bonds were tracking US yields. The volume was low, and little activity happened today (Monday),” said a dealer at a primary dealership. “The 6.70 per cent (yield on benchmark 10-year government bond) will act as a support but given no positive cues, the yields are not seen softening in near term,” he added.

 

The yield on the benchmark 10-year US Treasury note rose by 7 bps to 4.25 per cent on Monday.

 

Market participants now eye the weekly state bond auction on Tuesday for significant cues.

 

“The cut-off at the weekly state auction will give the market some cues,” said a dealer at a primary dealership. “The supply is lesser than the calendar amount for this week, but the overall pressure is expected to remain,” he added.

 

Six states plan to borrow Rs. 13,000 crore at the weekly state bond auction on Tuesday, 66.3 per cent lower than the calendar amount of Rs. 38,600 crore.

 

Market participants said that the yield spread on the 10-year state bond and benchmark government bond is expected to tighten by 1-2 basis point on the back of reduced supply. The yield spread stood at 92 basis points at the last auction on January 13.

 

States and Union Territories plan to borrow up to Rs. 4.99 trillion through state government securities in the fourth quarter of the current financial year. The borrowing amount was on the higher end of expectations.

 

States had borrowed Rs. 5 trillion through state bonds in the first half of FY26, with Q2 issuances marginally exceeding the indicative borrowing calendar, the first such instance in seven quarters.

 

Meanwhile the rupee extended its loss for the fourth consecutive trading session to settle at 90.92 per dollar, against the previous close of 90.87 per dollar.

 

“Despite a relatively firm opening aided by a brief pullback in the US dollar, the rupee remained well-supported through the session as persistent corporate dollar demand and importer hedging activity resurfaced, preventing any sustained rupee recovery,” said Abhishek Goenka, Founder & CEO of IFA Global. 

 

The local currency is seen remaining sensitive to corporate demand and portfolio flows, with market participants remaining cautious amid lack of positive cues, said dealers.