India 10-yr bond yields jump to 1-yr high on record borrowing plan in FY27

Union Finance Minister Nirmala Sitharaman on Sunday announced a larger-than-expected gross market borrowing via dated securities of ₹17.2 trillion for FY27

India's bond market saw a negative start on Monday, with benchmark 10-year bond yields rising to the highest in over a year, as the government announced a record-high gross borrowing plan in the Union Budget 2026. 

 

The 10-year yield rose as much as 8 basis points (bps) to 6.78 per cent, the highest since Jan. 17, 2025, and the steepest intraday gain since August 29, 2025. So far this year, the yields have risen 2.63 per cent.

 

Union Finance Minister Nirmala Sitharaman on Sunday announced a larger-than-expected gross market borrowing via dated securities of ₹17.2 trillion for 2026-27 (FY27). This is 18 per cent higher than the current year and exceeds the ₹16.5 trillion forecast, according to Bloomberg estimates. 

 

Higher government borrowings and an increase in derivatives transaction taxes could weigh on bond yields, banks, non-banking financial companies (NBFCs) and market-linked businesses in the near term, Venkatesh Balasubramaniam, MD & Head of Research, JM Financial Institutional Securities, said. "While measures like buyback tax rationalisation provide some relief, the Budget prioritises long-term economic strength over short-term market sentiment."

 

The overall gross and net borrowing numbers, along with the lack of any specific measures to address demand for bonds, will clearly weigh on market yields, Rajeev Radhakrishnan, CFA, CIO - Fixed Income, SBI Mutual Fund, said in a note. 

 

Even as broader fiscal consolidation measures and the reduction in the debt-to-GDP ratio are long-term positives, the bond market in the near term will continue to depend on the RBI’s open market operations to anchor yields. "This remains a challenge and could keep yields elevated relative to underlying macroeconomic numbers."

 

The unexpected jump in Indian government bond supply has added to market discomfort in absorbing elevated state borrowings, which now account for around 40 per cent of India’s total sovereign issuance in FY2026 to date, Tanvee Gupta Jain, Chief India Economist at UBS Global Research, said in a note.

 

She added that states' gross and net bond supply is tracking an 18 per cent year-on-year (Y-o-Y) increase so far this year. According to UBS, the average maturity of issuances is also rising, which is likely to keep upward pressure on bond yields and increase the burden on policymakers to contain them.

 

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