India's 10Y bond yield projected to trade between 6.25-6.55 pc in FY26

IANS April 5, 2025 161 views

India's bond market is expected to maintain a stable yield curve in the upcoming fiscal year. The Bank of Baroda's report highlights the potential 10-year bond yield ranging between 6.25-6.55 percent. Key factors influencing this projection include RBI's liquidity measures, India's inclusion in global bond indices, and a prudent fiscal framework. Investor confidence remains strong due to consistent government policies and supportive market conditions.

"We expect India's 10Y yield to trade between 6.25-6.55 per cent in FY26" - Dipanwita Mazumdar, BoB Economist
New Delhi, April 5: India’s 10-year (10Y) bond yield is projected to trade between 6.25-6.55 per cent in current fiscal (FY26), a report said on Saturday.

Key Points

1

RBI's strategic liquidity management supports yield stability

2

Global bond index inclusion drives foreign investment

3

Government's borrowing strategy maintains yield curve balance

The government’s finely-tuned borrowing programme, with more supply of securities towards the short end, hints at keeping the long part of India’s yield curve broadly stable, according to a Bank of Baroda (BoB) report.

“The RBI’s measures will ensure that liquidity will be supportive of an orderly evolution of the yield curve. We expect India’s 10Y yield to trade between 6.25- 6.55 per cent in FY26,” said economist Dipanwita Mazumdar.

The trajectory of India’s 10Y yield in FY25 has been interesting. The start of FY25 was marked by some bit of stickiness in yield as in April, US 10Y yield has risen by 48bps itself on account of stickier inflation data and tight labour market conditions.

The same was reflective in India’s 10Y yield, which remained elevated during the same period. However, post that supportive US 10Y yield with Fed stepping on to the rate cut cycle much earlier than RBI has favoured domestic yield, said the report.

This, coupled with India’s inclusion to global bond indices (official date of inclusion: 28 June) and a prudent fiscal framework all kept yields rangebound. The liquidity conductions also remained conducive except for the latter part of the year.

However, the impact of it on yields was largely capped supported by RBI’s increased demand for securities through Open Market Operations (OMOs).

The second important driver of domestic yield has been India’s phased increase in weight in global bond index which has garnered significant FPI flows especially through the fully accessible route (FAR) route.

Other factors such as buoyant demand conditions, especially from banks, MFs and PFs, have also supported yields especially in an environment where system liquidity remained tight. Government’s finely tuned borrowing programme with more supply of securities towards the short end hints at keeping the long part of India’s yield curve broadly stable.

Further, the continuous adherence to the fiscal roadmap has also boosted investor confidence, said the report.

Reader Comments

R
Rahul K.
Interesting analysis! The 6.25-6.55% range seems reasonable given global conditions. RBI's OMOs have been particularly effective in stabilizing yields. Would love to see how the June inclusion impacts flows.
P
Priya M.
As someone who follows bonds closely, I think the report underestimates potential volatility from US Fed actions. Their rate decisions could push yields beyond this range. Otherwise solid analysis though!
A
Amit S.
Good to see India's fiscal discipline paying off in bond markets 👏 The index inclusion is a game changer - expect more stable inflows going forward.
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Neha T.
Could someone explain what this means for retail investors? Should we consider bond funds now or wait? #AskingForAFriend
S
Sanjay P.
The yield stability is impressive considering global headwinds. Shows RBI's monetary policy is working well. Though I wonder if corporate bonds will follow similar trends...

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

Tags:
India Bond Yield RBI Bank of Baroda Fiscal Policy Economic Forecast
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