Govt borrowings lift yields, regain brings some respite

MUMBAI: Government bond yields hardened on Monday, with the benchmark 10-year paper closing at a more than one-year high as a larger-than-expected borrowing programme weighed on demand ahead of the policy meeting, even as the rupee posted its best gains since Dec.

The benchmark 10-year yield settled at around 6.77%, sharply higher than the previous session and its highest close since mid-Jan 2025. On Friday, it had ended near 6.7%, up from about 6.5% three months ago. Bond markets were shut on Sunday.




The rupee rose about 47 paise to close at 91.51 to the dollar, marking its strongest single-day gain in over a month. The move followed likely dollar sales and modest inflows that helped offset global volatility. On Friday, the currency had touched an all-time intraday low of 91.99 before ending at 91.98.

Yields are up nearly 18 basis points so far this year, driven by expectations of higher bond supply from the Centre and states.

Concerns intensified after the Budget announced record gross market borrowing of Rs 17.2 lakh crore for 2026–27, nearly Rs 1 lakh crore above expectations.

“Net market borrowing came in as expected (Rs 11.7 lakh crore) but gross market borrowing was higher (Rupees 17.2 ). It’s possible that the RBI switches or government buybacks reduce some of the pressure, but that is only a hope for now,” said Pranjul Bhandari, economist with HSBC. According to Bhandari, while the govt met its FY26 fiscal deficit target of 4.4% of GDP, it has opted for a gentler consolidation path of 4.3% for FY27, the smallest consolidation in six years.

The Budget also pointed to a slower pace of fiscal consolidation, targeting a debt-to-GDP ratio of 55.6% and a fiscal deficit of 4.3% of GDP next year.

In bond market, participants trimmed longer-duration exposure after the Budget and shifted to 1–3 year maturities, expecting liquidity support to cap short-end yields. Bond purchases in the secondary market and scheduled buying operations offered some relief, with markets awaiting further measures and expecting policy rates to remain unchanged.