The Indian government bond yields surged to one-year high on Monday as the market reacted negatively to the higher-than-expected gross borrowing by the government in 2026-27. The yield on the 10-year benchmark bond ended at 6.77%, up 7 basis points (bps) from the previous close.
On February 1, Finance Minister Nirmala Sitharaman announced the government’s gross borrowing through dated securities at Rs 17.2 lakh crore in FY27, which is a 16% jump from the last year. The net borrowing from dated securities is estimated at Rs 11.7 lakh crore.
What do bank execs say?
“The market is surprised by the higher-than-expected borrowing numbers. It anticipated around Rs 16-16.5 lakh crore, but actual figures exceed that, potentially pushing the yields. Now, the yields are trending towards 6.80% level,” said a dealer at a state-owned bank.
According to Sameer Karyatt, executive director and head of trading at DBS Bank India, the surplus liquidity in the system has supported the short end of the yield curve, resulting in a steepening of the yield curve.
Larger gross borrowing
The larger gross borrowing comes at a time when yields are already elevated despite 125-bps rate cut due to an unfavourable demand-supply dynamics and tightened liquidity. Since the last 25-bps rate cut in December, yields moved up by 25 bps.
“Now, the bond market will take cues from the MPC (monetary policy committee meeting) policy and other details of borrowing including the composition of borrowing, which will be released later. I expect yields to hover around current levels, roughly in the range of 6.70-6.80%,” Rajeev Pawar, treasury head, Ujjivan Small Finance Bank.
He expects open market operations (OMOs) or other liquidity measures to be announced during the policy, which could boost market sentiment. The Reserve Bank of India’s (RBI) bi-monthly monetary policy committee meeting is scheduled later in this week on February 4-6.
Market participants expect more bond purchases from the RBI through OMOs to support demand-supply dynamics from higher gross borrowing.
A dealer at a primary dealership said that the market appetite at current levels cannot absorb this year’s supply plus next year’s, which will likely push yields sharply higher going ahead. In the near-term, yields are expected to trade in the range of 6.75%-6.85%, and the market could test 6.95%-7.00% in the coming months, he added.