Indian government bonds are likely to begin the trading day on a subdued note, facing downward pressure after Friday's selloff. Market participants are primarily focused on the Indian rupee's performance, which has recently fallen to a record low, and the implications of upcoming economic data releases.
The benchmark 10-year yield is expected to fluctuate between 6.55% and 6.59%. It closed at 6.5665% on the previous Friday. Bond yields typically move inversely to prices. The rupee's recent slump to an all-time low of 89.49 against the U.S. dollar has intensified concerns, particularly after it experienced its most significant single-day decline since May. Traders suggest that a further decline towards the 90 mark cannot be ruled out.
Market sentiment remains jittery until greater clarity emerges regarding the Reserve Bank of India's (RBI) comfort level with the currency's movement. The central bank's interventions to defend the rupee have also led to tighter liquidity, impacting demand for bonds.
The market is closely monitoring the Reserve Bank of India's next steps in managing both liquidity and bond yields. The RBI's actions, such as canceling bond sales, have previously provided a temporary boost by signaling discomfort with rising yields, but these rallies have been short-lived due to the weaker rupee and tight liquidity conditions.
Several factors influence the rupee's value, including variations in oil prices and broader economic conditions. A depreciating rupee can lead to increased bond yields and interest rates, potentially attracting foreign institutional investments. However, this scenario may not favor long-term debt funds, as their net asset value and returns could decrease.
The Indian bond market, which includes government securities, state development loans, and corporate bonds, was approximately ₹226.3 trillion (USD 2.66 trillion) as of December 2024. Corporate bond issuances have steadily increased, reaching ₹9.9 trillion in FY25, surpassing the ₹8.6 trillion in FY24. Expectations for FY26 estimate issuances of around ₹11 trillion.
India's bond market is at a crucial point, influenced by capital demand, digital transformation, and investor behavior. The inclusion of Indian bonds in global indices like JP Morgan's GBI-EM and FTSE's EMGBI is expected to drive passive inflows, potentially reshaping the market's depth and visibility. Domestic investors are also increasing their allocations to bonds.
The yield on the India 10-Year Government Bond held steady at 6.54% on November 21, 2025. While it has edged up slightly over the past month, it remains lower than a year ago. Market forecasts estimate it to trade at 6.42 in 12 months.
