Hopes of further rate cuts by the RBI's Monetary Policy Committee amid liquidity boost and an appreciation in the rupee led the 10-year Indian benchmark government bond yield to end on Monday at 6.31%, the lowest since Nov. 9, 2021, according to three treasury officials.
Yield on the 10-year benchmark Indian government bond, 6.79%, 2034 fell by 6 basis points.
The fall was because of buying by long-term investors, such as pension funds and insurance companies, on hopes that the MPC may have to resort to three rate cuts in the current financial year as against two penciled in earlier, bank dealers said.
A section of the market is looking at terminal rates of 5.25% as compared to 5.5% that the market had earlier hoped, a private bank dealer said on the condition of anonymity.
Market participants are betting that the 10-year government bond yield will fall to 6.25% before the next MPC meeting in June.
The latest tariff announcements by the Trump administration in the US does not augur well for global and domestic growth, which is creating a risk off sentiment among investors.
"Recent commentary by the RBI governor has led the market to believe that more rate cuts could be in the offing," Sandeep Agarwal, fund manager at Sundaram Asset Management Co., said. "We are expecting downward revisions in growth projections by the RBI in the upcoming policy. Also more liquidity and OMO operations has led to a rally in the g-sec."
"Global uncertainties and weather disturbances, however, pose risks to the inflation outlook. Even though we have projected a somewhat lower real GDP growth for FY26 at 6.5%, India is still the fastest growing economy. Yet, it is much below what we aspire for," RBI Governor Sanjay Malhotra had said at the 24th FIMMDA-PDAI annual conference in Bali.
On April 9, the central bank cut the repo rate by 25 bps to 6% and shifted its stance to accommodative, in line with the market's expectations.
"Given our estimates of the growth-inflation mix and the RBI's tolerance for two-way INR moves, we pencil in another 75–100 bps of repo-rate cuts to 5–5.25% by end-FY2026," Kotak Securities said in a note.
Also, excess liquidity in the banking system to the tune of Rs 2.13 lakh crore as of April 17 also lifted investor sentiment.
This was visible in the daily variable rate repo action result on Monday, which saw banks bidding only Rs 6,332 crore as against Rs 1 lakh crore notified by the RBI, indicating less demand for liquidity in the banking system.
Additionally, a stronger rupee also aided demand for government bonds. The Indian rupee strengthened by 24 paise to 85.14 against the US dollar at close as the dollar index fell to an over three-year low.
The rupee is in a safe place as the US economic growth momentum stalls, then there is a possibility to look at a lower dollar rate, dealers said, adding that rupee was not being looked at as a depreciation currency in the near future.
While the corporate debt market did show a similar optimism in rates as compared to gilts owing to demand-supply dynamics, the tight pricing for Housing and Urban Development Corp.'s 10-year bond on Monday showed cost of borrowing is becoming cheaper for corporates.
The state-owned entity raised Rs 2,430 crore, just shy of Rs 2,500 crore that it had planned to borrow through a 10-year bond issue at 6.9%. This is 4 bps lower than what Power Grid Corp.'s raised Rs 6,000 crore through a similar paper.
While a fall in yields is beneficial for issuers, investors like insurance companies, pension funds, banks and other investors will make lower returns.
RECOMMENDED FOR YOU
Indian Insurers Ask Regulator To Revamp Bond Valuation Rules
Jul 04, 2025
India’s Bond Rally Cools Just As Another Index Inclusion Nears
Jun 30, 2025
Infrastructure To PSU Banks: Emkay's Manish Sonthalia Bullish On These Sectors After RBI Rate Cuts
Jun 20, 2025
New Normal? Narrowing India-US Rate Differential Might Be Here To Stay
May 22, 2025
POPULAR