Govt bonds fall as higher state debt sale adds to supply concerns
The surge in supply comes as demand remains weak, with pension funds shifting toward equities and insurers cutting back amid lower sales of guaranteed-return product
 "Govt bonds fall as higher state debt sale adds to supply concerns")
By Subhadip Sircar and Bhaskar Dutta
Indian government bonds fell after states unveiled a larger-than-expected borrowing plan, heightening supply concerns.
The 10-year yield climbed as much as four basis points to 6.65 per cent, while the yield on the 6.33 per cent 2035 bond rose as much as five basis points to 6.66 per cent.
States plan to issue ₹5 trillion ($55.4 billion) of bonds in the January-March quarter, the Reserve Bank of India said after market hours on Friday. That’s higher than ₹4.5 trillion estimated by Bank of America Corp. and almost double the issuance in the previous three months.
The surge in supply comes as demand remains weak, with pension funds shifting toward equities and insurers cutting back amid lower sales of guaranteed-return products.
“The impact of the higher state borrowings will be felt on a widening of spreads between state and central government bonds from their already elevated levels,” said Gopal Tripathi, head of treasury at Jana Small Finance Bank.
Benchmark yields dipped slightly — by less than 20 basis points — in 2025, as concerns over heavy supply and weak demand offset four rate cuts and record central bank cash injections via open market purchases and forex swaps.
“The RBI’s OMOs are providing support and we could see even more bond purchases beyond January,” said Sagar Shah, head of domestic markets at RBL Bank Ltd. “I don’t see the 6.7 per cent level being immediately breached.”