Bond Market Goes Slow As Yields Stay Up

The recent rally in India's bond market, where prices of government securities had been rising steadily, has now slowed down. Bond prices are falling, and yields are climbing again.

A bond yield is the return an investor gets from holding a bond. When bond prices go up, yields fall. When bond prices go down, yields rise. So, the current rise in yields means investors are demanding higher returns to lend money to the government.

India's 10-year government bond yield is up around 6.58 to 6.60 per cent, showing that borrowing costs remain high even after the Reserve Bank of India (RBI) reduced the repo rate.

Why Yields Are Still High

One major reason is heavy government borrowing. Both central and state governments have issued large volumes of bonds in the last quarter of the financial year. As the number of bonds increases, prices fall. The falling prices automatically push yields higher.

Domestic demand has also weakened. Since loans are cheaper now, banks are focussing on lending to businesses and families. So, they are putting more money into loans and less into buying bonds from the government. Insurance companies slowed their bond purchases because premium inflows were weaker, while pension funds shifted more money into equities after their limits in stocks were raised.
IndiaBonds, an independent bond platform, noted that while India's fixed-income market has been stable compared to global turbulence, large borrowing requirements and shifting investor preferences are keeping yields firm. Their blog emphasises that when institutional buyers like banks and insurers step back, the government must pay more interest to attract investors. They described this as a "crowding out" effect, where strong credit demand leaves less room for bond demand.

Foreign Portfolio Investors (FPIs) are also adding pressure by selling government securities worth about 3,291 crore rupees over two trading sessions, although they remain net buyers overall this year with 9,003 crore rupees.

Global trends have played a role too, where bond yields abroad have been rising. This international movement added to the upward push in Indian yields.

What Does It Mean

For the government, higher yields mean borrowing is more expensive. Every new bond issue requires paying more interest, which increases the cost of financing public debt. For companies, bank loans have become cheaper, thanks to the repo rate cut. But that means, if they issue bonds, they have to offer higher interest rates to attract buyers. However, new investors can fetch higher returns. Those who are already holding bonds see the market value of their bonds are falling.

Sanjeev Kumar, Co-CEO of BondVue, says in the firm's LinkedIn Post that RBI's December 2025 policy-the 25 basis point repo decrease, strengthened open market operations (OMO), and the liquidity support through foreign exchange swaps-are major moves toward growth and credit stability. These steps will reinforce bond market resilience, balancing affordability for borrowers with investor confidence. He advises that investors should treat the current yield rise as a temporary supply-demand imbalance and accumulate quality government securities for the medium term.

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