India's bond market is in limbo as investors eagerly wait for new signals from the Reserve Bank of India (RBI) and future debt supply, after a spectacular rally that drove benchmark yields to their lowest since 2021.
Key Highlights:
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Yields at Multi-Year Lows: The 10-year benchmark government bond yield settled at 6.37% last week, its fifth consecutive weekly fall and lowest since December 2021. This dramatic fall is reflective of a move towards a new interest rate regime and growing institutional demand.
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RBI’s Accommodative Stance: The RBI’s recent 25 basis point rate cut—its second in 2025—coupled with a shift to an “accommodative” policy stance, has fueled optimism for further easing. Analysts now anticipate additional rate cuts in the coming months, especially as inflation remains subdued and liquidity stays robust.
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Debt Buys and Supply Action: The RBI itself has bought as much as ₹400 billion of bonds already in the month and intends to purchase an equal sum within the next fortnight. On their own part, fresh supply by the government of bonds and auctioning of debt is being scrutinized closely on yields' effects.
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Foreign Inflows Spur: Foreign funds have rushed more than $1.5 billion into equities and bonds in India amid decreasing yields and a steady rupee.
Outlook: Yields are expected to stay in the 6.30–6.40% zone, with any further movement depending on RBI minutes, future auctions, and emerging rate trends across the globe.
While the market absorbs this cue, the investor is recommended to remain agile and keep an eye on the central bank's moves for that next turning point.
Sources: Reuters, Jiraaf, TradingView