India 10Y Yield Rises Despite Rate Hold

The yield on India’s 10-year G-Sec rose to around 6.7%, recovering from two-week lows, as tight domestic liquidity and global rate trends pushed investors to demand higher returns. The Reserve Bank of India kept its repo rate at 5.25% in February 2026, after a 25-basis-point cut in December. While the hold would normally support bond prices, its impact was limited by domestic liquidity pressures and pre-policy market positioning. Indian lenders face a deposit shortfall and are reluctant to buy government bonds, as RBI’s FX interventions and liquidity injections have drained rupee funds. Banks are seeking relief on LCR norms, HTM flexibility, and CRR adjustments, with limited market participation keeping yields elevated. Additional support came from US Treasury yields, with the 10-year–2-year spread nearing a four-year high amid expectations of Fed rate cuts and persistent concerns over inflation and the fiscal deficit.

The yield on India’s 10-year G-Sec fell to around 6.7%, extending a three-session decline to hit a two-week low, as investors positioned ahead of a major Reserve Bank of India bond purchase and the upcoming monetary policy decision. Market participants focused on Thursday’s planned RBI open market operation, which will involve purchases of INR 500 billion, including the highly liquid 6.33% 2035 paper. Traders are watching the cutoff yield closely for hints on the central bank’s policy stance, while also anticipating liquidity-boosting measures in Friday’s policy announcement. Investors are expecting the RBI to keep rates steady while adding liquidity, prompting short-covering and new long positions, with economists forecasting liquidity could reach INR 2.4 trillion by March, helping to contain the upward pressure on yields.

The yield on India’s 10-year G-Sec climbed to around 6.76%, the highest level in a year, as government bonds face pressure amid a record borrowing plan for the upcoming fiscal year. India unveiled its federal budget for the year starting April 1, revealing a gross borrowing target of INR 17.2 trillion, roughly 17% higher than the current year’s INR 14.61 trillion. The higher-than-expected borrowing, combined with a lack of major policy incentives for bond investors, has created a supply-demand imbalance that has pushed yields higher. Analysts noted that the Reserve Bank of India will need to remain the marginal buyer of government securities to provide support, continuing its bond purchases in the secondary market. Despite these interventions, concerns over weaker capital flows and elevated borrowing requirements are sustaining upward pressure on yields, leaving investors bracing for a challenging start to the new fiscal year.