India's 40-Year Bond Yield Surges to Highest Level Since 2018

The yield on India's 40-year government bond jumped to an eight-year high on Friday, as sustained selling pressure impacted government securities across all maturities.

Post-Auction Spike

Following a recent auction, the yield on the 7.71% 2066 government bond reached 7.9254%, a level not seen for a security of this duration since November 2018, according to data from Investing.com. This move reflects ongoing bearish sentiment in the Indian sovereign debt market.

Over the past 10 weeks, the 40-year bond yield has climbed by 49 basis points. The rise indicates that investors are demanding higher returns to hold the country's longest-dated government debt.

Yield Curve Flattens

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The recent sell-off has led to a notable flattening of the yield curve, as yields on shorter-term bonds have risen more sharply than their long-term counterparts. The spread, or difference, between the 40-year bond and the 10-year benchmark bond has compressed significantly.

Key changes in the 40-year vs. 10-year spread include:

• Current Spread: 44 basis points
• One Month Ago: 62 basis points
• Two Months Ago: 70 basis points

This narrowing is largely because the benchmark 10-year note's yield has increased by a more substantial 70 basis points over the same 10-week period in which the 40-year yield rose by 49 basis points. A flattening yield curve can sometimes signal investor expectations of slowing economic growth or shifting monetary policy.