Suyash Choudhary, Chief Investment Officer – Fixed Income at Bandhan AMC, said the RBI has absorbed nearly 75% of the net government bond supply over the last 13 months through open market operations, which has helped contain yield volatility.
However, he highlighted a shift in the underlying macro dynamics, including a significant reflation in global commodities, with industrial metals up 25-30% in rupee terms since October, and rising yields in developed markets.
“I would submit that there is room for bond yields to rise, reflecting probably the shift in macro dynamic that we are undergoing,” he added, suggesting a range of 6.55% to 6.85% for the 10-year yield.
Market concerns stem from expectations of heavy borrowing. According to CNBC-TV18 poll, the central government may borrow between ₹11.5 and 11.7 lakh crore in FY27 to fund a fiscal deficit of nearly ₹16.80 lakh crore. When state borrowing and bond redemptions are included, total bond supply could approach ₹29 lakh crore. Despite this, experts believe the bond market reaction has been measured.
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Abhishek Upadhyay, Senior Economist at ICICI Securities Primary Dealership, focused on the upcoming budget’s fiscal numbers. He noted the government’s shift to a medium-term debt-to-GDP roadmap and projected a fiscal deficit of 4.2% of GDP, representing a modest 20 basis points consolidation.
He anticipates that the government’s net borrowing will be close to the current fiscal year’s level at around ₹11.6 lakh crore, supported by strong small savings collections.
The gross borrowing figure, however, remains uncertain. It could fall below ₹16 trillion if the RBI agrees to switch its maturing securities, but could otherwise be around ₹16.7 lakh crore.
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