According to a report by Bank of Baroda, India’s 10-year government bond yield is expected to remain between 6.50-6.60% in September. The announcement of the second-half borrowing calendar will be a key factor in determining yields, as the allocation of securities across maturity buckets could provide some relief. The bank notes that a widening interest rate differential with the US is also supportive, as the US Federal Reserve has begun its rate-cutting cycle, while the Reserve Bank of India (RBI) has chosen to maintain its policy stance.
Globally, yields have been mixed, with US yields showing a softening bias following comments from Federal Reserve Chair hinting at a September rate cut. Other advanced economies are adopting a “wait and watch” approach. The CME Fed Watch tool suggests traders are increasingly pricing in the likelihood of a cut this month. Domestically, the report observed firmness in August, with the longer end of the yield curve showing the most movement, attributed to fading hopes of an RBI rate cut and concerns over excess supply of government securities.
The report adds that most of the increase in yields happened post-RBI policy, where traders have formed expectations that India is past the rate cut cycle and has entered a status quo phase. The strong GDP growth print for the first quarter has further validated this view, despite base effects and deflator-related issues, reinforcing expectations that monetary policy will remain steady in the near term. Overall, the report expects India’s 10-year yield to trade in the range of 6.50-6.60% in September, with the RBI’s policy stance and global yield trends being key factors influencing yields.
The RBI’s decision to maintain its policy stance has reinforced expectations of a prolonged status quo in domestic rates. The bank’s report suggests that the yield curve will remain stable, with the 10-year yield trading in a narrow range. The strong GDP growth print has also reduced the likelihood of a rate cut, making it more likely that the RBI will maintain its current policy stance. As a result, bond yields are expected to remain range-bound, with the 10-year yield trading between 6.50-6.60% in September.