Benchmark bond yield seen testing 7.25% by April end amid supply pressures

Government bond yields are expected to remain elevated, with the benchmark 10-year yield likely to test 7.25 per cent amid oil price pressures and heavy supply

Yields on government bonds this financial year (2026-27) are expected to remain elevated, weighed down by rising prices of crude oil and persistent supply pressures, according to dealers.

 

Market participants expect the yield on the benchmark 10-year government bond to test 7.25 per cent by the end of April amid global uncertainties, which are likely to keep the rupee under pressure.

 

Additionally, a heavy supply of state development loans (SDLs) is seen exerting further upward pressure on yields.

 

“Upward pressure on yields is likely to continue owing to oil-price shocks and geopolitical uncertainties,” said a market participant.

 

The yield on the benchmark 10-year government bond settled at 7.04 per cent in FY26.

 

“If conditions do not improve, then we may test 7.25 per cent (benchmark bond yield),” said a dealer at a primary dealership.

 

“Uncertainty is high and yields are expected to keep inching higher,” he added.

 

The government is planning to issue dated securities worth ₹8.2 trillion in H1FY27, broadly in line with those of previous years.

 

However, the market will have to absorb this supply alongside the calendar for SDLs.

 

Yields are, therefore, likely to remain under pressure in the first half. Sustained elevation in oil prices could add to the strain.

 

“We are not seeing too much capital inflow because the dollar has demand in times of crisis. For bonds, oversupply and SDLs are also factors. The calendar for the first half itself is around ₹8.2 trillion, which is in line with previous years. However, the market still has to absorb this supply along with the SDL calendar. In the first half, there will likely be stress and pressure on yields. If oil prices remain elevated for a longer period, which is expected, it will add pressure,” said Aditya Vyas, chief economist, STCI PD.

 

Market participants do not expect the impact of the West Asia conflict to ease in the near term. The first half of this financial year is likely to remain somewhat stressed in terms of yield. However, conditions are expected to improve in the second half, when geopolitical uncertainties may stabilise and there will be greater clarity on inflation and the policy outlook.

 

Bond yields, expected to ease to 6.80-6.85 per cent during the year, instead hardened beyond 7 per cent as global uncertainties intensified.

 

The view on both bonds and the rupee remains cautious in the near term, with limited capital inflows amid a stronger dollar environment.