India's 10-Year Bond Yield Expected to Range Between 6.25% and 6.55% in FY26

New Delhi(The Uttam Hindu):  India's 10-year (10Y) bond yield is expected to trade between 6.25% and 6.55% during the current fiscal year (FY26), according to a report released on Saturday. The report from Bank of Baroda (BoB) suggests that the government's carefully managed borrowing program, with an increased focus on short-term securities, will help keep the long end of India's yield curve stable.

"The RBI’s measures will ensure liquidity remains supportive for an orderly evolution of the yield curve. We anticipate India’s 10Y yield to trade between 6.25% and 6.55% in FY26," said economist Dipanwita Mazumdar. India’s 10Y yield trajectory in FY25 has been interesting. The fiscal year began with some yield stickiness, with the US 10Y yield rising by 48bps in April due to persistent inflation and a tight labor market. This trend was reflected in India's 10Y yield, which remained elevated during the same period. However, after that, the US 10Y yield's support, combined with the US Federal Reserve’s earlier-than-expected rate cuts compared to the RBI, helped domestic yields stabilize, the report noted.

The inclusion of India in global bond indices (officially set for June 28) and a disciplined fiscal approach kept yields within a range, while liquidity conditions remained favorable, except in the latter part of the year. RBI's increased demand for securities through Open Market Operations (OMOs) played a significant role in capping yield fluctuations. Another key factor driving domestic yields has been India’s gradual increase in its weight in global bond indices, which has attracted substantial Foreign Portfolio Investment (FPI) flows, especially through the Fully Accessible Route (FAR). Additionally, strong demand from banks, mutual funds, and provident funds has supported yields, especially amid tight system liquidity.

The government's well-structured borrowing program, with an emphasis on short-term securities, is expected to keep the long end of India's yield curve broadly stable, and the adherence to the fiscal roadmap has further bolstered investor confidence, the report concluded