Indian bond yields hit highest level in over a year
What's the story
Indian bond yields have surged to their highest level in over a year, following the government's announcement of an unprecedented debt-sale plan. The yield on the 10-year benchmark bond opened at 6.740% and climbed to 6.778%, compared to yesterday's close of 6.696%. This is the highest since January 17, 2025, and could go up to as much as 7% in coming weeks, according to Nomura Holdings Inc and ICICI Securities Primary Dealership Ltd.
Borrowing details
Government's massive borrowing plan drives up bond yields
Finance Minister Nirmala Sitharaman announced in her budget speech that the government will borrow ₹17.2 lakh crore ($187 billion) in the fiscal year starting April 1. This is a 16% increase from the current year's borrowing and surpasses the ₹16.5 lakh crore estimate in a Bloomberg News survey. The massive borrowing plan has contributed to the rise in bond yields, reflecting investor concerns over increased government debt supply.
Economic impact
Rising borrowing costs strain Indian economy
The rising borrowing costs could further strain an economy already grappling with high US tariffs. The central bank's ability to cut interest rates further to spur growth is also limited. Despite the Reserve Bank of India (RBI) intervening in the market to contain yields amid heavy state government issuance and waning pension and insurance fund demand, yields have continued to rise.
Central bank intervention
Central bank must step up bond purchases: Expert
Alok Sharma, the treasury chief at Industrial and Commercial Bank of China in Mumbai, said the central bank will have to step up its bond purchases to boost liquidity. He also suggested that regular debt purchases would be needed to signal yield trends. "Proactive management of liquidity will be necessary, or yields will only continue to rise," he told Bloomberg news.
Financial outlook
Budget deficit to reduce in FY27, but gross borrowings rise
Sitharaman said the budget deficit will reduce to 4.3% of GDP in FY27, from an estimated 4.4% in the current year. However, swelling bond redemptions have pushed gross borrowing sharply higher. Net borrowing for FY27 is projected at ₹11.7 lakh crore, slightly higher than this year's revised estimate of ₹11.3 lakh crore. The government also plans to raise a net ₹1.3 lakh crore through treasury bills in FY27, compared with no such issuance this year.