Summary of this article
Bond yields have risen after RBI refrained from announcing fresh bond purchases
Market participants expect proactive liquidity-enhancing measures, with another Rs 1lakh crore of bond purchases
India’s bond yields have been hardening over the past several months amid waning investor appetite and uncertainty on the geopolitical front. The Reserve Bank of India landed another blow to bonds as it skipped its bond purchases from the market at the policy review decision. Despite the disappointment this week, bond market traders have pinned their hopes on the central bank to relieve some of the pressure on yields.
The 10-year benchmark government bond (G-Sec) yield closed at 6.74 per cent on February 6, inching around the year-high yield of 6.77 touched earlier during the week. Yields rose after RBI Governor Sanjay Malhotra delivered the Monetary Policy Committee’s decision to maintain a status quo on the repo rate and the policy stance.
The rate easing cycle, which delivered a cumulative 125 basis points of rate cut in 2025, has come to an end with the terminal repo rate seen at 5.25 per cent. This is also because inflation is seen rising in the coming quarters, and as GDP growth remains resilient.
Despite the rate cuts delivered, India’s bond yields have continued to rise, and now that the easing cycle is seen over, market participants say that bond yields could slowly inch up towards 7 per cent.
However, traders and analysts were hopeful that the RBI would announce some measures, such as debt purchases through open market operations (OMO) auctions, which could help relieve pressure on bond yields. The absence of such measures could trigger a sharper rise in yields than anticipated, bond traders said.
India’s bonds are also under pressure due to large state bond supply and a bumper government bond supply of Rs. 17.2 lakh crore for the financial year 2026-27 announced at the Union Budget. This supply in the upcoming years is nearly 18 per cent higher than the ongoing year, and has also resulted in tepid investments in bonds over the past weeks.
Malhotra said that the net borrowing number of Rs. 11.7 lakh crore should be instead looked at, which is on the lower side, saying that the government should be able to raise funds at “reasonable” borrowing rates.
However, the market remains worried. The only way, market experts said, that a rise in bond yields could be contained is through more bond purchases by the RBI. Despite a no-show at the MPC, most market participants continued expect the RBI to buy another Rs 1 lakh crore worth of bonds from the market in the coming weeks.
"As the monetary cycle nears the end of its easing phase, a “lower-for-longer” rate environment is expected to prevail, with the pace and timing of policy normalization contingent upon the durability of the economic recovery. Furthermore, the RBI is expected to maintain an accommodative liquidity stance, bolstered by proactive liquidity-enhancing measures to support financial stability," Amit Modani, Senior Fund Manager, Lead – Fixed Income, Shriram AMC, said.
