US bond yields hit 2002 highs as oil tops $100; foreign selling in India persists

Borrowing costs for the US government climbed to their highest levels in more than two decades this week. On Wednesday, October 7, 2026, the yield on the 30-year US Treasury bond rose to about 5.72% during trading, its highest level since 2002, as crude oil climbed back above $100 a barrel and stoked fears of faster inflation and more interest-rate rises. The 10-year Treasury yield touched about 5.35% the same day, also its highest since 2002, before easing after a well-received auction. By the close on Friday, October 9, the 10-year yield stood at about 5.24% and the 30-year at about 5.60%. In India, foreign institutional investors remained net sellers of shares for an eighth straight week, though buying by domestic institutions absorbed the outflow.

The yield on US government bonds is the base rate for money around the world. When investors can earn more than 5% a year on what they regard as the safest asset, riskier investments, including shares in emerging markets such as India, have to offer more to attract money. That is one reason foreign funds have been pulling cash out of Indian equities for weeks.

This week's jump was driven by oil. Crude rising above $100 a barrel raises the risk that inflation in the US will stay high, which in turn makes it more likely that the Federal Reserve will keep raising interest rates. Bond prices fall and yields rise when investors expect that. Analysts have also pointed to large US budget deficits, which mean the government must keep selling more bonds.

For India, high oil prices and high US yields together are a difficult mix. Oil makes up a large part of India's import bill, so dearer crude weakens the rupee and adds to inflation. A weaker rupee and higher US returns, in turn, make Indian assets less attractive to foreign investors, adding to the selling pressure.

The steady buying by Indian mutual funds, insurers and other domestic institutions has been the market's cushion. This week, their purchases almost exactly matched foreign sales. That has kept the benchmark indices from falling much further, but it also means the market is leaning heavily on domestic money.

Short-term: Indian markets will stay sensitive to oil prices and US bond moves next week, alongside quarterly results from large IT companies and the September inflation data.

Long-term: If US yields stay above 5%, foreign money may remain cautious on emerging markets, and Indian companies borrowing abroad will face higher costs. High global yields also add to the pressure on the Reserve Bank of India to keep its own rates firm.

Who is affected: Indian stock investors and mutual fund holders, companies that borrow in dollars, importers paying for oil, and households facing higher fuel prices and loan rates.

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