The deferment of India’s inclusion in the Bloomberg Global Aggregate Index led to a sell-off in the bond market, pushing the 10-year benchmark yield higher to end the day at 6.63%, down 3 basis points (bps) on Tuesday.
After a positive opening at 6.59%, the 10-year G-Sec briefly firmed to an intraday high of 6.57% but soon reversed as selling pressure intensified following the deferment news. Yields climbed to 6.64%, marking a 7 bps rise from its intra-day high, before stabilising.
For most of the session, the benchmark traded in a narrow 6.62–6.63% band, eventually closing at 6.63%, reflecting the market’s reassessment of demand‑supply dynamics in the absence of index‑driven foreign flows.
Impact on Foreign Inflows and Liquidity
“Inclusion in the Bloomberg Global Aggregate Index was expected to attract significant foreign investment, potentially $10–20 billion or more into Indian government bonds as passive flows from funds tracking the index.
Delaying that inclusion removes an anticipated anchor of demand, which disappointed investors and pushed yields higher,” said Kunal Sodhani, Head Treasury, Shinhan Bank. “When there is inclusion in the index, there is more demand for bonds, which pushes up prices and lowers yields.
Now the present status will continue. Problem today is of liquidity, which is keeping yields up,” added Madan Sabnavis, chief economist, Bank of Baroda.
What did chief economist at IDFC First Bank say?
Gaura Sengupta, chief economist at IDFC First Bank, said, “The delay comes at a particularly sensitive juncture, with supply pressures building and limited support expected from the monetary policy cycle.” Sengupta notes that the absence of index‑related inflows will be felt immediately.
“The fact that we are not getting included in Bloomberg in FY27 is definitely negative because FY27 gross supply will be on the higher side,” she said.
Deferment has removed a key tailwind for the bond market at a time when government borrowing is set to rise meaningfully in FY27. Sengupta’s preliminary estimates peg the Centre’s gross market borrowing at Rs 15.5–16 lakh crore, roughly 10% higher than FY26’s Rs 14.66 lakh crore.
State development loans (SDLs) are also expected to rise to Rs 13 lakh crore, up from Rs 12 lakh crore this year.
Monetary Policy and Inflation Constraints
Economists feel the timing is challenging because the rate‑cut cycle is largely behind us. With inflation expected to rise to around 4% in FY27 due to base effects alone, monetary easing will be constrained.
“There is not too much space to cut rates because inflation goes to 4% without building in any supply shocks,” said Sengupta. This removes a key expectation channel that could have otherwise supported yields.
In the absence of foreign investor participation via the Bloomberg index, the burden of absorbing the elevated supply shifts back to domestic players—primarily the Reserve Bank of India. Marketmen expect the central bank to step in aggressively.
Estimates are that the RBI may need to conduct OMO purchases of a similar magnitude to FY26’s Rs 5.7 lakh crore to stabilise the market.
However, there are pockets of support. Players expect banks to be a key player in the bond market this year and to support G-Sec yields. Bank demand for government securities is likely to improve, as their investment ratios have fallen following earlier OMO operations.
As of December 2025, banks’ G‑Sec holdings stood at 27.7% of NDTL (net demand and time liabilities), down from 29% a year earlier. As the RBI increases OMO purchases, the banks’ ratio continues to decline, and they will need to replenish. With corporate deposit growth expected to strengthen in FY27, banks are expected to be buyers in the G-Sec market.
Similarly, pension funds, having largely exhausted their expanded equity limits in FY26, are expected to return to the G‑Sec market in FY27.
Yield Forecast and Future Triggers
Despite these supportive factors, traders and economists expect the yields to remain range‑bound, with limited room for a sustained rally. “The scope for yields to drop below current levels is not there, but RBI will cap the upward pressure,” said Sengupta.
She expects the 10‑year benchmark to trade between 6.55–6.80%, with occasional dips if positive triggers emerge. A mid‑2026 announcement on Bloomberg inclusion or a lower‑than‑expected borrowing number in the Union Budget could briefly push yields below 6.60%.
However, Sengupta cautions that such outcomes are difficult to bank on. Sodhani of Shinhan Bank added that with the inclusion postponed, the expected inflows vanish, creating a demand gap, causing yields to rise. He expects the 10-year G-Sec yields to move in the range of 6.57%-6.67%.