Daijiworld Media Network - New Delhi
New Delhi, Apr 5: India’s benchmark 10-year government bond yield is expected to remain within the 6.25% to 6.55% range throughout the current financial year (FY26), driven by a combination of strategic domestic measures and favorable global trends, according to a report released by Bank of Baroda on Saturday.
The report highlights that the government's carefully structured borrowing plan — focusing more on short-term securities — is likely to help stabilize the longer end of the yield curve. “The RBI’s actions will ensure that liquidity conditions continue to support a smooth evolution of the yield curve,” said Dipanwita Mazumdar, economist at Bank of Baroda. “We expect the 10-year yield to trade between 6.25% and 6.55% in FY26.”
The trajectory of India’s 10-year yield has seen notable shifts. At the beginning of FY25, yields stayed elevated, influenced by rising U.S. Treasury yields — which surged by 48 basis points in April alone — due to persistent inflation and tight labor market conditions in the U.S. This uptick mirrored in Indian yields as well.
However, the landscape shifted as the U.S. Federal Reserve signaled an earlier-than-expected rate cut cycle, even ahead of the RBI, helping to ease pressure on domestic yields. The upcoming inclusion of Indian government bonds in global indices — effective June 28 — further contributed to market optimism and stability.
The report also credits India’s firm fiscal discipline for maintaining yield stability. “A prudent fiscal framework and consistent adherence to the roadmap have significantly bolstered investor confidence,” it noted.
A key contributor to yield moderation has been the Reserve Bank of India’s active involvement in the market via Open Market Operations (OMOs), increasing demand for securities and anchoring long-term rates.
India’s rising weight in global bond indices has attracted substantial foreign portfolio inflows, particularly through the Fully Accessible Route (FAR), adding to the stability of the bond market. Additionally, strong demand from domestic institutional players such as banks, mutual funds, and pension funds has further supported the bond market, even during periods of tight liquidity.
Overall, the combination of global integration, a well-calibrated borrowing strategy, and robust domestic demand is expected to keep India’s 10-year bond yields well-anchored in FY26.