Mumbai: Brace for rate hikes. That’s the message being conveyed by India’s swap markets, adding to the misery of investors mired in the longest rout in the nation’s sovereign bonds in two decades.

Onshore markets are pricing in an increase of about 45 basis points in the benchmark repurchase rate over the next 12 months, said Vivek Rajpal, a Singapore-based rates strategist at Nomura Holdings Inc. The Reserve Bank of India (RBI) typically moves the rate by 25 basis points.

“Fixed income markets are telling us that we have fallen behind the curve," Michael Patra, one of the six members of the monetary policy committee, said at the RBI’s February meeting, minutes released on late Wednesday showed. He also advocated a 25-basis-point rate hike.

The benchmark 10-year bond yield surged as much as 11 basis points on Thursday, as the minutes indicated that most of the panel members are concerned about the inflationary impact from the government’s expansionary budget.

The yield was up 5 basis points at 7.76% as of 10.18am in Mumbai, taking its advance since the end of July to 1.29 percentage points.

Price-action in the bond market is “quite nervous already and the minutes will not help the sentiment at all," Rajpal of Nomura said. Bloomberg

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