Summary of this article
Bond yields rise ahead of RBI policy outcome on fears of hawkish commentary
Market participants expect RBI announcements to ease pressure on bonds
India’s government bonds tumbled, with the benchmark 10-year bond yield rising above 7 per cent, on fears that the Reserve Bank of India (RBI) could deliver hawkish commentary during the outcome of the monetary policy committee (MPC) meeting on April 8, 2026. The RBI’s policy decision comes at a time of surging energy prices amid the ongoing US-Iran war.
The 10-year government security (G-sec) yield rose to a high of 7.07 per cent on April 7, before retreating to 7.05 per cent during the session. Foreign portfolio investors (FPIs) sold heavily from emerging markets, such as India due to concerns of rising inflation and subdued growth due to a prolonged conflict in West Asia.
Crude oil prices have surged nearly 50 per cent since the war began on February 28, which has raised concerns about India’s rising import bill as well as inflationary pressures. Along with this, energy supply shocks are also expected to impact growth outlook of the economy along with a slowdown in consumption.
Recently, Moody’s Ratings lowered India’s gross domestic product (GDP) growth forecast for the ongoing fiscal year 2026-27 to 6 per cent from 6.80 per cent earlier. The ratings agency also flagged concerns on the headline inflation rising to 4.8 per cent in FY27.
Experts have said that though inflation is likely to inch up in the coming months if the war continues, RBI might not choose to raise interest rates at this point, since inflation is likely to be within the RBI’s target band of 2-6 per cent. Most market participants expect the RBI’s Monetary Policy Committee (MPC) to hold interest rates and maintain a ‘neutral’ stance on April 8. However, investors will watch out for the commentary and any other announcements which could indicate monetary policy tightening later in the year.
“While yields could potentially test the 7.15-7.20 cent range if energy prices remain volatile, a significant portion of the inflation risk appears to be priced in. Yields are expected to find a new equilibrium near current levels if domestic institutions continue to step in to absorb the supply," said Abhishek Kumar, a Securities and Exchange Board of India-registered investment advisor (Sebi-RIA).
Incidentally, nearly 51 per cent (Rs. 8.20 lakh crore) of the gross borrowing by the Centre is scheduled to be raised during the first half of FY27. This has also dampened investor sentiment in the market, with institutional investors opting to wait till the RBI’s decision to ramp up bets.
Some market participants are also expecting the RBI to announce measures to check bond yields through open market operation auctions. The RBI may also provide specific guidance on liquidity management and give specialised liquidity windows to support yields, they said.
“Domestic investors are currently well-positioned to increase their bond holdings, as elevated yields offer a favourable risk reward ratio compared to volatile equity markets. The 5- to 10-year maturity segment is particularly attractive for long-term investors seeking to lock-in higher real rates during a policy pause. For those concerned about near-term volatility, short duration funds provide a safer way to navigate the current global uncertainty,” Kumar added.
