India 10-year bond yield ends at highest in over 1 year on budget supply shock

MUMBAI: India’s 10-year bond yield ended at its highest in over a year on Monday as a bigger-than-expected market borrowing planhit demand, ahead of the central bank’s policy meeting.

India announced a record gross borrowing of 17.2 trillion Indian rupees ($187.99 billion) for 2026–27 in the federal budget, well above the 16.3 trillion Indian rupees forecast in a Reuters poll.

Rating agencies have said the budget points to a slower and more gradual pace of fiscal consolidation. The government is targeting a debt-to-GDP ratio of 55.6% and a fiscal deficit of 4.3% of GDP for next fiscal year.

The benchmark 10-year 6.48% 2035 bond yield settled at 6.7662%, up from Friday’s close of 6.6963%. It ended at its highest since January 17, 2025.

The 10-year yield is up about 18 basis points this year, driven by concerns over higher state debt supply, which has been magnified by the budget’s record borrowing plan.

Traders trimmed longer-duration positions after the budget, instead leaning into the 1-to-3-year notes on expectations that the Reserve Bank of India’s liquidity operations will cap short-end yields.

The RBI purchased 126.55 billion Indian rupees of bonds in the secondary market in the week ended January 23, and included liquid and the former benchmark 6.33% 2035 paper in this week’s 500 billion-Indian rupee bond buying-plan.

Traders are awaiting further liquidity measures from the RBI, with most market participants expecting the central bank to hold rates in its policy decision on Friday.

“The budget is positive for growth and neutral for inflation, so we do not expect this to materially influence the RBI at its next MPC meeting on 6 February, where we expect repo rate to be left unchanged,” Nomura said in a note.

Rates

India’s OIS curve steepened on Monday, with the longer-end climbing alongside government bond yields, while short-term swaps drew receiving on the RBI’s liquidity support.

The one-year OIS rate fell 1 bp to 5.5450% while the two-year rate was up 1.25 bps at 5.72%. The five-year OIS rate rose 3.25 bps to 6.1950%.