Will Bond Yields Decline Due to Easing Inflation and Rate Cuts?
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Synopsis
As inflation eases and oil prices fall, the outlook for bond yields looks promising. A recent report suggests that India’s 10-year government bond yields may decline. Dive into the details of these changes and what they mean for the economy.
Key Takeaways
- 10-year government bond yields expected to decline.
- Crisil forecasts yields between 6.46% and 6.56% by October 31.
- Expect a policy rate cut from the RBI.
- SDL yields predicted to drop by 8 to 10 bps.
- CPI inflation projected to ease to 3.2% by fiscal 2026.
New Delhi, Oct 14 (IANS) The benchmark 10-year government bond yields are projected to experience a slight decrease in the upcoming months, influenced by benign inflation, decreasing oil prices, and potential monetary easing from the Reserve Bank of India, according to a report released on Tuesday.
A report by Crisil Intelligence predicts the 10-year G-sec yield will range from 6.46 percent to 6.56 percent by October 31 and from 6.39 percent to 6.49 percent by December 31.
In a similar vein, SDL yields are anticipated to drop by 8 to 10 bps over the same period. Corporate bond yields might also see a decline of 6 to 10 bps during this timeframe, the report stated.
Additionally, Crisil forecasts that the RBI’s Monetary Policy Committee is likely to further reduce the policy rate in this fiscal year, driven by trends in GDP growth and inflation.
Analysts have indicated that the one-month outlook on bond yields is influenced by easing inflation and stable oil prices, which counterbalance the effects of geopolitical uncertainties and decelerating global growth.
Other elements impacting the yield could include market liquidity, renegotiation of US tariffs, foreign portfolio investor (FPI) inflows, depreciation of the rupee, decisions by the US Federal Open Market Committee, global uncertainties, and expected borrowings from both state and central governments.
During its meeting on October 1, the MPC held the repo rate steady at 5.50 percent and adopted a neutral stance, indicating potential for future rate cuts. Following this, the 10-year benchmark 6.33 percent GS 2035 finished at 6.52 percent.
Trading volumes for G-secs rose 9 percent month-on-month in September, while T-bill trading increased by 11 percent. Conversely, trading volume for SDLs saw a decline of 23 percent, while corporate bonds increased by 13.31 percent. Anticipated GST rationalization and improved direct tax collections are expected to enhance state revenues, alleviating supply-demand pressures in the market, as noted in the report.
Crisil Intelligence projects that CPI inflation will ease to 3.2 percent in fiscal 2026, down from 4.6 percent last year.
Point of View
The anticipated decline in bond yields reflects a broader trend of economic stabilization influenced by monetary policy and external factors. It is crucial for our nation to remain vigilant in monitoring these developments as they can impact investment and fiscal strategies.
NationPress
14/10/2025
Frequently Asked Questions
What factors influence bond yield fluctuations?
Bond yields are influenced by inflation rates, oil prices, monetary policy decisions, and overall market liquidity.
What is the expected bond yield range for October?
The forecast for the 10-year G-sec yield is between 6.46 percent and 6.56 percent by October 31.
How might the RBI's policy decisions affect bond yields?
Further rate cuts by the RBI's Monetary Policy Committee could lower bond yields as borrowing costs decrease.
What impact do geopolitical uncertainties have on bond yields?
Geopolitical uncertainties can create volatility in the markets, affecting investor confidence and, consequently, bond yields.
How does inflation impact bond yields?
Generally, lower inflation leads to lower bond yields as it reduces the need for aggressive monetary policy.
