INR rates: Finding value after the sell-off
Yields looking attractive after recent rise.
Group Research - Econs, Sherilyn Chew27 Aug 2026
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India rates have drifted higher over the past week from hawkish RBI minutes combined with spillovers from volatility in the US long end. The sell-off was most pronounced at the front end, with 2Y IGBs bearing the brunt of the repricing, while the 5Y sector and OIS curve were partially cushioned by the final wave of FCNR(B)-related inflows ahead of the 31 August window closure.

 The 2Y IGB yield has retraced back to levels last seen prior to the RBI's 5 June policy package. With a considerable amount of hawkish repricing already reflected in the front end, current levels appear increasingly attractive and could offer scope for yields to retrace lower should incoming data or policy communication shift in a more dovish direction. Meanwhile, as FCNR(B)-related liquidity effects gradually fade and money market rates normalise, the tailwinds that have supported 5Y IGB and OIS are likely to wane. Together, these point to scope for a steeper 2s5s IGB curve and a compression in the 2Y IGB-OIS spread.

On the external front, should the US financial repression situation increasingly manifest through a weaker USD and lower UST long end yields, the backdrop for India rates could turn more supportive, while also encouraging capital inflows into local assets.

Sherilyn Chew

Multi-asset strategist
[email protected]

 



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