India bond: The latest Reserve Bank of India (RBI) policy disappointed the Indian bond markets. While the central bank delivered what was widely expected on interest rates, the absence of any fresh liquidity measures proved to be a letdown for bond investors.
Indian government bonds rose on Monday. The benchmark 6.48% 2035 bond yield was at 6.7609%. The yield ended at 6.7363% on Friday.
The RBI has already stepped in aggressively this financial year, purchasing nearly ₹7 trillion worth of bonds, a move that helped cap yields. However, with no additional bond-buying signals or liquidity support in the policy, markets are now recalibrating expectations.
In the last policy of FY26, the Reserve Bank of India’s Monetary Policy Committee (MPC) voted unanimously to keep the policy repo rate unchanged at 5.25%, in line with market expectations. The MPC also decided to maintain a neutral stance, citing evolving global and domestic conditions.
Experts now expect near-term pressure on yields and advise investors to remain cautious in the post-policy landscape.
Basant Bafna, Head – Fixed Income at Mirae Asset Investment Managers (India), said, “Markets had expected more clarity on liquidity measures or OMOs in the policy, and in the absence of that, bond yields moved up marginally by around 3-5 basis points.”
He added that despite near-term uncertainty, liquidity conditions have improved meaningfully over recent weeks due to a mix of durable and short-term measures, which has pushed overnight rates below the repo and SDF levels.
What to expect from the bond market?
Despite near-term disappointment, several fixed income experts believe the medium- to long-term outlook for bonds remains constructive, supported by stable inflation and resilient growth.
Killol Pandya, Head of Fixed Income at JM Financial Asset Management, said:
“Overall, we remain constructive on the bond markets over a medium-to-long term period and expect the shorter end to outperform the longer end of the duration curve.”
Pandya believes that with many positive actions already behind the market, investors may gradually move towards securing higher accrual through curated corporate bonds and sovereign assets.
A similar tone of cautious optimism was reflected by other market participants assessing the post-policy landscape.
Suyash Patodia, Joint Managing Director at Choice International, highlighted that stable interest rates offer better visibility to borrowers and investors, while bond yields are likely to remain range-bound with a mild downward bias, provided inflation stays under control.
“Healthy domestic demand, rising capital expenditure, and continued infrastructure spending support the decision to adopt a wait-and-watch approach. Stable interest rates provide greater visibility to borrowers and investors, particularly benefiting rate-sensitive sectors, while bond yields are likely to remain range-bound with a mild downward bias, provided inflation continues to stay under control,” he noted.
Bafna further pointed out that although spreads over effective policy rates remain elevated compared with March levels, base effects are expected to soften inflation over the next year. He noted that this could open limited room for a 25-basis point rate cut, though the RBI is likely to stay cautious. Importantly, current spreads between the repo rate and the 10-year benchmark remain attractive versus long-term averages, with incremental flows from provident and pension funds expected to gradually support government bonds over time.
Overall, while the RBI policy may have disappointed bond markets in the short run, experts believe structural factors and improving liquidity conditions could still support bonds over a longer investment horizon.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
