India’s benchmark bond yields, which spiked sharply in March, are likely to soften modestly in the near term, with the 10-year government security (G-sec) yield expected to ease to 6.85–6.95% by end-April, according to CRISIL Intelligence.

March spike lifts yield to 7.02% amid global volatility

The 10-year benchmark (6.48% GS 2035) closed March at 7.02%, marking a sharp 36 basis points (bps) jump from 6.66% in February, reflecting heightened global volatility, elevated crude prices and shifting investor sentiment. State development loan (SDL) yields and corporate bond yields also hardened during the month, rising to 7.69% and 7.73%, respectively.

Despite the March uptick, CRISIL expects yields to stabilise over the next one to three months. By June-end, the 10-year G-sec yield is projected in a narrow band of 6.89–6.99%, indicating a gradual cooling from recent highs. SDL yields are seen at 7.52–7.62%, while corporate bond yields may hover between 7.56% and 7.66%.

Softening bias ahead as liquidity tightens, macro cues stay mixed

The outlook hinges on a complex interplay of domestic and global factors. Key drivers include monetary policy signals from the Reserve Bank of India (RBI), borrowing dynamics, liquidity conditions, and foreign portfolio investor (FPI) flows. Global cues—particularly US Federal Reserve actions, Treasury yields, crude oil prices and currency movements—remain critical swing factors.

CRISIL flagged that Brent crude prices averaged $103 per barrel in March, surging over 45% sequentially and over 40% year-on-year, adding pressure on yields and inflation expectations. At the same time, India’s CPI inflation edged up to 3.4% in March from 3.2% in February, though it remains within the RBI’s tolerance band.

On the macro front, growth is expected to moderate slightly, with GDP projected at 7.1% in FY27 compared with 7.6% in FY26. Meanwhile, the fiscal deficit is targeted at 4.3% of GDP in FY27, marginally lower than 4.4% in FY26, with gross borrowing estimated at ₹14.6 lakh crore.

Liquidity conditions have also tightened marginally, with surplus liquidity easing to 0.6% of net demand and time liabilities in March from 0.9% in February.

While near-term yields may soften, CRISIL cautions that geopolitical tensions, global trade uncertainties and volatile capital flows could keep the bond market on edge. The trajectory of inflation and central bank actions—both domestic and global—will be crucial in determining whether the anticipated easing sustains through the first quarter of FY27