MUMBAI: Indian government bond yields inched higher through the latter part of the week, weighed down by hawkish commentary from the US.Federal Reserve and concerns over sustained domestic debt supply, despite hopes of global index inclusion in the medium term.
The yield on the 10-year benchmark government bond closed at 6.5139 per cent on Friday, slightly up from 6.4867 per cent on Thursday. It briefly touched 6.50 per centin early trade Thursday, tracking weakness in global rates markets following the Fed’s decision.
The upward move followed remarks by Fed Chair Jerome Powell, who signalled a cautious, data-dependent approach to further rate cuts, despite the US central bank delivering its first reduction since December. While the Fed’s dot plot projects two more cuts in 2025, Powell’s tone introduced uncertainty.
“The policy leaned slightly hawkish, especially in the context of a market that had already priced in aggressive easing for 2026,” Mitsubishi UFJ Financial Group (MUFG) said in a note. The US bond yields dipped with the 10-year bond yield briefly dipping below 4 per cent though later climbing back above that level, reinforcing the bearish bias in global bond markets.
Domestic supply concerns
Back home, sentiment remained under pressure due to fears of continued bond oversupply. The Indian government conducted an auction on Friday for the benchmark 10-year bond maturing in 2035, selling Rs300 billion ($3.40 billion) worth of securities. The auction went ahead as scheduled, confirming that fresh supply has indeed entered the market.
“The market is focused more on the immediate supply pressure than on longer-term positives like possible index inclusion,” said a trader with a primary dealership. Bloomberg Index Services is currently gathering investor feedback on the potential inclusion of Indian bonds in its global aggregate index—a move that could support demand over time.
However, in the near term, the flood of issuances from both the Centre and states has kept traders cautious. The demand-supply imbalance is reflected in rising yields and a cautious secondary market.
Traders are also awaiting the second-half borrowing calendar for FY26, expected by the end of September. Market participants have urged the Reserve Bank of India to consider reducing ultra-long bond issuance and moderating weekly auction sizes to ease pressure.
OIS market mixed
In the overnight index swaps (OIS) market, movements were mixed. The one-year OIS was quoted at 5.46 per cent, and the two-year at 5.4450 per cent, both showing marginal declines. However, the five-year OIS moved up to 5.7225 per cent, suggesting a slight steepening bias
