HSBC sees 10-year gilt yield at 6.00% Dec-end on skew toward monetary easing
This story was originally published at 18:09 IST on 17 September 2025
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NEW DELHI – HSBC expects India's 10-year government bond yield to fall to 6.00% by the end of 2025 as monetary policy is likely to tend towards further easing. This would be the lowest the benchmark yield has hit since June 2021. The recent correction in gilt yields matches the research team's regression model, which is neutral on India's government bond market in the immediate term.
"We maintain our lower rates view in medium term as risks are skewed towards further monetary easing with tariff-related uncertainty and benign inflation outlook," the bank's analysts said in a multi-asset strategy note on Wednesday.
The Reserve Bank of India's Monetary Policy Committee cut the policy repo rate by 100 basis points to 5.50% between February and June, before changing its stance to 'neutral' from 'accommodative'. In the August policy review, it held both the policy rate and stance even as it cut its outlook for CPI inflation in 2025-26 (Apr-Mar) by 60 bps to 3.1%. Economists now see CPI inflation undershooting even this forecast due to the impact of goods and services tax rate cuts, announced and to be implemented between the August and October MPC decisions.
The 10-year benchmark gilt yield is down 29 bps year to date at 6.47%, reversing slightly after dipping below 6.20% in June. In August, the gilt had its worst month in nearly three years due to concerns about additional bond supply and low hope of further policy easing. Now, some short-term bond yields and the one-year overnight indexed swap rate reflect hopes of a rate cut in December.
"A lack of appetite among local investors for super-long bonds in the primary auctions has led to a cheapening of India local bonds of late," the note said. "The results of upcoming long-dated auctions would therefore indicate any shift in preference among local investors for duration bonds."
India's local government bonds are nearly impervious to global factors since only around 3% of the outstanding is owned by foreign investors, HSBC said. Among major domestic asset classes, they are the least affected by offshore cues, while domestic equities are the most affected. India has underperforming returns from other emerging markets this year. Local currency debt returns in India have been near 2% year to date, against 15% in other emerging markets.
"Domestic liquidity, which has gone from deficit to surplus over the last year, is the most important factor for bonds in this framework," the report said. End
US$1 = INR 87.82
Reported by Aaryan Khanna
Edited by Avishek Dutta
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