Will Government Bond Yields Decline Due to Inflation Easing and Strong Fiscal Health?
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Synopsis
Will government bond yields continue to decrease in light of easing inflation, better fiscal health, and lower crude oil prices? This insightful report from Crisil Intelligence outlines potential trends in bond yields and economic growth, setting the stage for significant financial shifts.
Key Takeaways
- 10-year government bond yields expected to decrease until February 2026.
- Projected yield range: 6.38% to 6.48%.
- State development loan yields could drop to 6.98% to 7.08%.
- GDP growth projected at 7% for fiscal 2026.
- Crude oil prices forecasted at $60 to $65 per barrel.
New Delhi, Dec 15 (NationPress) A projection indicates that the benchmark 10-year government bond yield is anticipated to decrease until February, primarily attributed to a reduction in inflation rates, enhanced fiscal stability, and declining crude oil costs, according to a report released on Monday.
The report from Crisil Intelligence anticipates that the benchmark 10-year government bond yields will fluctuate between 6.38% and 6.48% by February 28, 2026, with the current rate standing at 6.54%.
Furthermore, yields on state development loans are projected to drop from 7.15% to a range of 6.98% to 7.08% by the end of February, while 10-year corporate bond yields may also decrease from 7.15% to a similar range.
The report emphasizes that monetary policy remains open to a potential rate cut amidst favorable inflation conditions; however, the RBI is likely to maintain a data-driven approach in light of the unpredictable global landscape.
Domestic consumption is expected to be the primary driver of growth, bolstered by moderate inflation, GST reforms, and tax relief measures, as stated in the report.
Crisil forecasts a GDP growth rate of 7% for the upcoming fiscal year, an increase from 6.5% in fiscal 2025, and anticipates a CPI-based inflation rate diminishing to 2.5% in FY26.
The report notes that a sharper-than-expected decline in food inflation, robust agricultural growth, stable global crude prices, and the benefits of GST rate adjustments are likely to keep food inflation under control.
As for fiscal health improvements, the report mentions that the budget aims to reduce the Centre’s fiscal deficit to 4.4% of GDP in fiscal 2026, down from 4.8% of GDP in FY25.
According to the ratings agency, crude oil prices are expected to average between $60 and $65 per barrel in calendar year 2026, compared to an estimated $65 to $70 per barrel in 2025.
The agency states, "Our November outlook is shaped by our inflation predictions and moderate oil prices, which mitigate the effects of geopolitical tensions and slowing global growth."
In the coming three months, the yield could be impacted by factors such as market liquidity, renegotiation of U.S. tariffs, foreign portfolio investor (FPI) inflows, rupee depreciation, decisions made by the FOMC, and borrowing activities by both state and central governments.
Point of View
I believe that the easing of inflation and improving fiscal health present a promising outlook for the economy. The expected decline in bond yields could foster a more favorable investment climate, benefiting both consumers and businesses. With the government's commitment to manage fiscal deficits effectively, we can anticipate a stable economic trajectory.
NationPress
15/12/2025
Frequently Asked Questions
What factors are contributing to the expected decline in government bond yields?
The decline in government bond yields is attributed to easing inflation, improved fiscal health, and decreasing crude oil prices.
What are the projected bond yield rates by February 2026?
The benchmark 10-year government bond yields are expected to range between 6.38% and 6.48% by February 28, 2026.
How is domestic consumption expected to impact economic growth?
Domestic consumption is projected to drive growth, supported by favorable inflation, GST rationalization, and tax relief measures.
What is Crisil's forecast for GDP growth in the coming fiscal year?
Crisil forecasts a GDP growth rate of 7% for the upcoming fiscal year, an increase from 6.5% in fiscal 2025.
What is the anticipated average crude oil price for 2026?
Crude oil prices are expected to average between $60 and $65 per barrel in calendar year 2026.
