Bond yields remained largely stable through September, with a slight easing in early October as supply pressures eased. The 10-year benchmark hovered near 6.50%, supported by a lower-than-expected Q3 SDL calendar, dovish RBI guidance, and a shift to liquidity surplus (₹1.5 trillion) after the 0.75% CRR unwind and increased government spending, according to Tata Mutual Funds' report on Bond and Beyond.

While 10Y issuance increased and the 30–50-year supply declined, short-term borrowing remained high, keeping money market rates stable. Overall, bond prices rose slightly amid softer inflation expectations and the U.S. 10Y near 4.1%.

G-Sec

The report highlighted bond yields remained range-bound in September, with the benchmark 10-year G-Sec (6.33% GS 2035) staying steady around 6.5% on October 8. The RBI, in its October policy, maintained the repo rate at 5.5% with a neutral stance, while revising GDP growth upward from 6.5% to 6.8% and CPI inflation downward from 3.1% to 2.6% for FY26.

The revised H2 borrowing calendar shows increased issuance in the 10Y tenor, while supply of 3the 0-50Y bonds has decreased, indicating the government’s aim to limit duration supply pressure. However, short-term borrowing remains high, ensuring the short end remains well supplied, per the report.

Corporate bonds

Corporate bond yields across AAA PSU and non-PSU papers remained steady, with 5-10Y bonds quoting around 7%-7.4%, per the report.

Liquidity

As per the report system liquidity improved significantly by late September, turning into a surplus of around ₹1.5 trillion by early October, up from a modest ₹130 billion in early September. This improvement was supported by the completion of the 0.75% CRR unwind, front-loaded government spending, and a moderation in tax outflows.

RBI’s active liquidity operations (VRR, VRRR) have kept the weighted average call rate close to the repo rate. Money market rates have eased slightly, with 3M CD yields at 5.85% and 1Y CP around 6.42%.

Short-end yields

The report also noted that short-end yields remained stable around 6.25%-6.45%, supported by steady demand for CDs/CPs and easing liquidity from CRR unwind and upcoming government spending. RBI’s lower inflation forecast (2.6%) has boosted expectations of rate cuts in 2026, keeping the short end of the curve anchored.

Long-end yields

Long-end yields remained largely steady at around 6.50%. A lighter ultra-long supply in the second half of the year and a stable global environment (US 10Y near 4.1%) helped mitigate intermittent volatility during auction week. Long-term yields are expected to stay within a range, supported by reduced ultra-long bond issuance and a stable inflation outlook.

India’s 10Y yield has remained range-bound around 6.50 %, while the US 10Y has eased to 4.1%.

Outlook for October 2025

It indicates the bond market remains stable and long-term yields are likely to stay steady, suggesting there’s no urgent need to extend duration.

Bond markets started October more stable. The 10Y benchmark yield dropped to 6.50%, helped by lower-than-expected Q3 SDL borrowings (₹2.81 trillion versus ₹3.25-3.5 trillion forecasted) and dovish RBI comments lowering inflation forecasts for H2FY26. The government also accelerated ₹1 trillion in tax devolution to states, reducing state borrowing pressures, stated the report.

The Centre’s borrowing pattern shows increased issuance in the 10Y segment, while supply in the 30–50-year range has been reduced, flattening the ultra-long curve. Short-term borrowing remains high, while long-term issuance has slowed down. With liquidity in surplus and inflation expectations stable, yields are likely to stay within a narrow range. We expect the 10Y G-Sec to fluctuate between 6.4-6.6%, with long-term stability supported by lower supply and easing global yields, per the report.