Indian bonds are likely to
open sharply weaker on Monday, as investors digest a
larger-than-expected borrowing plan for the next financial year,
while the central bank’s bond-buying could lend some support.
The benchmark 10-year 6.48 per cent 2035 bond yield
is likely to be in the 6.71 per cent-6.77 per cent range, according to a private
bank trader. The yield closed at 6.6963 per cent on Friday. Bond yields
move inversely to prices.
“The market was not expecting the budget to be very
favourable for debt because the focus is not on aggressive
fiscal consolidation, but the budget had no incentive for bond
investors, and we would see the impact today,” the trader said.
India unveiled its federal budget on Sunday for the fiscal
year starting April, and the lack of any big-bang announcements
and higher-than-expected borrowing has left the markets wary.
The government will gross borrow a record 17.2 trillion
rupees ($187.38 billion) in 2026–27, which was higher than most
market estimates.
The gross borrowing will be 17 per cent higher than the current
fiscal year’s ₹14.61 trillion, while the net borrowing
would be ₹11.73 trillion, up from ₹11.33 trillion.
A median of a Reuters poll of 35 economists estimated
borrowing at 16.3 trillion rupees.
For now, the only supporting factor for the market is the
Reserve Bank of India that purchased bonds in the secondary
market in the week ended January 23, and included liquid and
former benchmark 6.33 per cent 2035 paper in this week’s ₹500 billion bond purchase plan.
The RBI has already completed infusing more than ₹10 trillion into the banking system, which is a record for any
financial year.
Rates
India’s overnight index swap rates are expected to see
paying pressure in line with government bond yields.
The one-year OIS rate ended at 5.5550 per cent on
Friday, up 10 bps in January, while the two-year rate
ended at 5.7050 per cent, up 15 bps. The five-year OIS
rate rose 24 bps to 6.1625%, in its biggest
monthly rise since October 2024.
Published on February 2, 2026