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Informist, Friday, May 29, 2026

 

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--RBI: India bond yields could rise if global monetary easing cycle stalls 
--RBI: To merge gilts secondary mkt transactions' circulars to one master norm 
--RBI: India bond yields could rise if global monetary easing cycle reverses 
--RBI: Liquidity injection, govt fiscal consolidation to contain rise in ylds 
--RBI: Net OMO purchases INR 8.78 tln FY26 vs INR 2.59 tln FY25 
--RBI: 10-year g-sec yield averaged 6.76% Q4 FY26 vs 6.57% Q3 
--RBI: Will manage FY27 mkt borrow orderly on fisc gap aim, mkt conditions 
--RBI: To review non-competitive bidding norms in gilts, T-bills, state bonds 
--RBI: To onboard 'Retail Direct' holdings under account aggregator framework 
--RBI: Weighted avg gilt yield softened by 27 bps FY26

 

MUMBAI – The government's market borrowing programme will be managed "in an orderly manner" in 2026-27 (Apr-Mar), keeping in mind the fiscal deficit targets and evolving market conditions, the Reserve Bank of India said in its annual report for FY26 released Friday. The report also outlined a plan to consolidate regulations applicable to the secondary government bond market.

 

The Centre's commitment to consolidating its fiscal management, and measures by the RBI to infuse liquidity are likely to limit an upward rise in Indian government bond yields, the report said. The Union Budget had estimated the fiscal deficit at 4.3% of GDP, which would rise to 4.5% of GDP based on the new GDP series. Domestic yields could rise if global monetary easing cycles pause, or reverse to hiking cycles to address persistent oil price shocks amid the West Asia conflict, the report said.

 

In FY26, the weighted average gilt yield fell 27 basis points, the report said. However, gilt and corporate bond yields "exhibited a hardening bias during the year," it said. Indian government bond yields fell in Apr-Jun, but rose the rest of the financial year due to concerns about supply, rising crude oil prices and pared expectations of further rate cuts by the RBI's Monetary Policy Committee after a 25 basis-point cut in December, the report said. 

 

The rise in yields and risk premia due to geopolitical and tariff-related tensions was limited by cuts in the repo rate and open market operations by the RBI to buy gilts, the report said. Net OMO purchases by the central bank were INR 8.78 trillion in FY26, up from INR 2.59 trillion in FY25, as per data from the report. A "continued thrust on fiscal consolidation" by the Centre also limited the rise in yields, it said.

 

The 10-year benchmark government bond yield averaged 6.76% in the March quarter, up from 6.66% in Jan-Mar FY25, as per data from the report. This is also higher than an average of 6.27% in the June quarter of FY26 and 6.57% in the December quarter.

 

 

Short-term bond yields fell more than longer-term yields, it said. The five-year benchmark government bond yield averaged 6.46% in the March quarter, up from 6.02% in the June quarter but down from 6.56% in Jan-Mar FY25, as per the report. Except for Apr-Jun, spreads in money and gilt markets largely rose in FY26, the report said. The weighted average coupon on outstanding debt fell by 8 bps in FY26 from a year ago, and the weighted average maturity of primary issuances fell, the report said. 

 

The RBI's net credit to the government rose to INR 6.5 trillion in FY26 due to OMO purchases, the report said. Excess holdings of statutory liquidity ratio-eligible securities of scheduled commercial banks fell to 8.2% of net demand and time liabilities as of Mar. 31, from 10.3% in the year-ago period, also due to OMO purchases by RBI, the report said. Considering three routes of investment, foreign portfolio investors pumped INR 161 billion into Indian debt in FY26, as per the report.

 

FPIs held 1.8% of gilts, T-bills and state bonds as of Mar. 31. Commercial banks were the largest holders, at 34.6%, followed by insurance companies at 24%. Provident funds and the RBI each held 10.9%, as per the report. The central bank's investments in Indian government bonds on behalf of some foreign central banks and multilateral development institutions through the secondary market rose to a face value of INR 7.35 billion in FY26, from INR 7.30 billion in FY25.

 

In FY27, the central bank aims to merge all circulars applicable to secondary gilt market transactions "into a single Master Direction", it said. The central bank also intends to undertake a review of existing schemes for non-competitive bidding in gilts, Treasury bills and state bonds, the report said. State governments invested INR 2.69 trillion in T-bills in 2026, down from INR 2.77 trillion in 2025, as per the report. The central bank also aims to on-board holdings of 'Retail Direct'--its retail investor portal for government securities--under the account aggregator framework.  End

 

Reported by Cassandra Carvalho

Edited by Avishek Dutta

 

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