Govt bond selloff to continue as RBI policy minutes hint at more rate hikes

The headline reports that government bond prices are expected to keep falling after the Reserve Bank of India's policy minutes signalled the possibility of further interest rate hikes. The transmission channel here is rate expectations: higher expected policy rates lift the yield curve as investors reprice the path of short-term borrowing costs, which pushes bond prices down and yields up. Sovereign debt is most directly exposed, particularly longer-dated maturities that carry greater duration risk, while rate-sensitive sectors such as banks, housing finance and other credit-heavy borrowers face second-order effects through tighter funding conditions. Banks holding large government bond portfolios may also see mark-to-market losses on their treasury books, which can feed into broader financial-sector sentiment. Traders will watch the next scheduled RBI monetary policy decision and the accompanying inflation projections, along with the monthly Consumer Price Index release, as the key signals for whether the expected tightening path is confirmed.

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