Yields on India's battered government bonds may be approaching territory that more investors consider a "buy", with that on the benchmark 10-year approaching 7.50%, a level not seen in four years.
The 10-year yield has risen for 11 consecutive weeks, hitting 7.498% on Tuesday. Persistently high oil prices are stoking inflation concerns and fuelling bets on another Reserve Bank of India rate hike in December, potentially by 50 basis points.
The rupee's struggles are adding to those expectations, with investors weighing RBI chief Sanjay Malhotra's remarks linking price stability with financial stability and acknowledging that monetary policy cannot be entirely separated from the latter.
For energy importer India, Brent crude oil near $115 a barrel and a struggling rupee remain key risks, but some Indian fixed-income investors reckon the bond selloff has reached a stage where the asset class offers a better risk-reward trade-off.
"We think the 7.50% level is an attractive entry point for the medium term," said Sachin Bajaj, chief investment officer at Axis Max Life Insurance.