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

New Delhi, April 5 (IANS) 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.

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.

--IANS

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