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Brinks Report > Blog > Business > Indian Bond Market Holds Firm Despite High Borrowing, RBI Support & Inflation Concerns
BusinessEconomy

Indian Bond Market Holds Firm Despite High Borrowing, RBI Support & Inflation Concerns

Ankita Das
Last updated: March 10, 2025 11:01 am
Ankita Das
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Indian government bond yields remained largely unchanged at the start of a crucial week, as market participants weighed heavy debt supply, central bank bond purchases, and key inflation data releases in India and the U.S.

  • Benchmark 10-year bond yield stood at 6.6902% at 9:45 a.m. IST on Monday, slightly up from 6.6881% in the previous session.
  • Market experts anticipate potential fluctuations, given the interplay of various factors shaping the bond market outlook.

Also Read: Dalal Street Weekly Preview: 10 Market Movers, Including Inflation and Tariffs

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Heavy Debt Supply Pressures Market

  • Indian states are set to raise 495.22 billion rupees ($5.68 billion) through bond sales this week.
  • This amount exceeds the initial borrowing estimate by 110 billion rupees, adding to the supply glut.
  • Last week, state borrowings overshot plans by 100 billion rupees, heightening concerns over rising debt levels.
  • Traders remain cautious, as the end of India’s financial year typically sees muted activity.

RBI’s Bond Purchases to Provide Stability

Despite mounting debt supply, RBI’s intervention is expected to limit a sharp rise in bond yields:

  • The central bank will conduct a government securities purchase worth 500 billion rupees on Wednesday, easing market liquidity.
  • Another 500 billion rupee bond purchase is scheduled for March 18.
  • Additionally, RBI will execute a $10 billion forex swap on March 24, reinforcing liquidity support.
  • These moves indicate RBI’s commitment to stabilizing the bond market amid increasing borrowing pressures.

Global Factors & Fed Rate Outlook

  • U.S. Treasury yields rose last Friday, following Fed Chair Jerome Powell’s stance on inflation and interest rates.
  • Powell signaled no urgency for rate cuts, citing uncertainty over the inflationary effects of previous U.S. tariff policies.
  • Market expectations: The Fed is projected to cut rates by 100 basis points in 2024 and 75 basis points in 2025.
  • Impact on India: Higher U.S. yields could put upward pressure on Indian bond yields, as foreign investors reassess their positions.

Inflation Data in Focus

  • Key inflation figures from India and the U.S. are due this week.
  • These reports will influence monetary policy decisions and bond market sentiment.
  • Unexpected inflation readings may drive market volatility.

Must Read: RBI Eases Liquidity Concerns, but Economists Expect Another Rate Cut in April to Support Growth

Market Outlook

  • Traders foresee volatility in the bond market due to a mix of heavy debt supply, central bank support, and global economic cues.
  • A private bank trader noted, “The benchmark bond yield will react to multiple factors, some of which remain unfavorable.”
  • While increased debt supply may push yields higher, RBI’s liquidity measures are expected to cushion any sharp rise.
  • Market participants will keep a close eye on inflation data, global interest rates, and RBI’s policy stance in the coming weeks.
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