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India Bonds: Yields to Drop Despite Rate Hikes?
1 Nov
Summary
- India's 10-year bond yield may fall to 6.75-7% by March 2027.
- Government debt buybacks and switches are improving borrowing.
- US Treasury yields face pressure from supply and borrowing needs.
Indian government bond yields are anticipated to decrease to 6.75-7% by March 2027, according to SBI Research. This forecast holds even if the Reserve Bank of India implements a 0.50% benchmark interest rate increase. Proactive government debt management, including bond buybacks and switches, has already reduced borrowing requirements by ₹1.23 lakh crore and could see further reductions.
Currently, India's 10-year government security yield stands at approximately 7.43%, with a spread of around 2.50% against US 10-year government bonds. Historically, a spread of 2-3% has been common since 2019. Despite an estimated excess supply of ₹1.52 lakh crore in the Indian bond market, strategic government measures are expected to support yield levels.
Globally, US Treasury yields are projected to hover around 4.75%, though short-term spikes to 5.25-5.35% are possible. Substantial US government borrowing needs and a mismatch between Treasury supply and investor demand are contributing to elevated yields. The US faces an excess supply of $304 billion in government securities, a significant increase from previous years.
