As 2026 begins, the yield on India’s 10-year government security remains steady around 6.6%, with trading confined to a narrow band. This cautious approach by traders is driven by anticipation of new debt issuance and an extensive state borrowing schedule. Today, the Indian government plans a 320 billion rupee auction of the benchmark bond, while state governments will soon unveil their borrowing strategies for January through March. This announcement comes with expectations of a historic quarterly supply, approximating 5 trillion rupees.
Meanwhile, in 2025, the benchmark yield witnessed a 17 basis point decline, marking its third consecutive yearly drop. This was facilitated by record debt purchases by the Reserve Bank of India (RBI) and a series of rate cuts totaling 125 basis points. Throughout the year, the RBI infused 11.7 trillion rupees into the banking system. This included 7 trillion rupees through debt purchases, 2.2 trillion via foreign exchange swaps, and a considerable 2.5 trillion rupee reduction in banks' cash reserve ratio, the largest yearly liquidity injection to date. As 2026 progresses, bond yields are anticipated to remain within a tight range, with short-term fluctuations influenced primarily by state borrowing activities and the policies of the RBI.
