The outlook for India’s 10-year benchmark government security (G-sec) yield in March will be shaped by global and domestic factors, including the upcoming US Federal Open Market Committee (FOMC) meeting, geopolitical uncertainties, and signs of slowing global growth, according to a Crisil report. 

The report said additional drivers such as liquidity tightening due to advance tax outflows, movements in crude oil prices, the rupee-dollar exchange rate, and foreign capital flows will also influence bond yields. 

CPI trends, FPI activity, and RBI decisions to drive bond market moves

Crisil noted that the trajectory of the 10-year G-sec yield will depend on a range of factors, including foreign portfolio investor (FPI) flows, global interest rates, inflation trends based on the Consumer Price Index (CPI), outcomes of the Reserve Bank of India’s Monetary Policy Committee (RBI-MPC) meetings, and borrowing programmes of both central and state governments. Ongoing uncertainties around global trade and geopolitical developments are expected to add to volatility. 

The yield on the 10-year benchmark paper (6.48% GS 2035) ended February at 6.66%, down 4 basis points from 6.70% at the end of January. 

Domestic sovereign bonds witnessed heightened volatility during the period, reacting to the Union Budget for FY27, global cues, and monetary policy signals. Sentiment turned bearish initially after the government announced higher-than-expected gross borrowing for FY27. However, yields later eased on optimism around an India-US trade deal and strong FPI inflows, although heavy supply of state development loans (SDLs) and fading rate-cut expectations capped gains. 

Liquidity support aids mid-week rally

Mid-week, bond markets found support from lower Treasury bill cut-offs, surplus liquidity, and expectations of open market operations (OMO) purchases by the RBI. However, sentiment weakened towards the end after the central bank refrained from announcing immediate liquidity support measures and raised its projections for CPI inflation and GDP growth. Weak auction cut-offs further pressured yields, pushing the benchmark to close at 6.74% in one of the sessions. 

Bond markets showed mixed but gradually improving trends across sessions, supported by easing overnight indexed swap (OIS) rates and softer US Treasury yields. Expectations of benign US macro data, stable domestic inflation prints, and RBI’s switch auction announcements provided intermittent support. However, profit booking, weak demand for long-term securities, rupee depreciation, and elevated crude oil prices limited the upside, with the benchmark yield settling in a narrow range of 6.66–6.72% across sessions. 

Crisil expects India’s GDP growth to moderate to 7.1% in FY27 from 7.6% in FY26, with growth supported by steady private consumption and a gradual pick-up in private investment. However, moderation in fiscal support and consumption in the latter part of the fiscal year, along with prolonged geopolitical tensions, pose downside risks. 

Inflation, as measured by CPI, is projected to rise to 4.3% in FY27, driven largely by an uptick in food prices. February CPI inflation rose to 3.2% from 2.7% in January. 

On monetary policy, Crisil expects the RBI to maintain a status quo on policy rates in the next fiscal, given the anticipated rise in inflation alongside a stable growth outlook. The MPC had kept the repo rate unchanged at 5.25% in its February meeting, maintaining a neutral stance. 

On the fiscal front, the Centre aims to reduce the fiscal deficit to 4.3% of GDP in FY27 from 4.4% in FY26 (revised estimates). Gross market borrowing is budgeted to increase to ₹17.2 lakh crore, although net borrowing is expected to rise more moderately to ₹11.7 lakh crore due to higher repayments. 

Crude oil prices are expected to average $75–80 per barrel in FY27 amid supply concerns linked to ongoing geopolitical tensions in the Middle East. Brent crude averaged $71.1 per barrel in February. 

Crisil also expects the current account deficit (CAD) to widen to 1.5% of GDP in FY27 from an estimated 0.8% in the current fiscal, amid subdued global trade and potential upside risks to imports from higher crude prices. A strong services surplus, however, is likely to keep the deficit manageable. 

On the liquidity front, sustained RBI measures—including variable rate repo operations, bond purchases, forex swaps, and increased government spending—helped maintain a liquidity surplus in February. This pushed the weighted average call rate to 5.11%, below the policy rate, easing borrowing conditions. According to the report, demand for SDLs and corporate bonds remained supported by mutual funds, even as supply pressures persisted across segments, including treasury bills, certificates of deposit (CDs), and commercial paper (CP).