India’s bond market stays resilient in May 2025 amid global volatility, says Finance Ministry

Despite a volatile global financial environment marked by trade tensions and geopolitical uncertainty, India’s government bond market found firm footing in May 2025. This stability was underpinned by two key developments: the Reserve Bank of India's (RBI) record surplus transfer and strong GDP growth in the final quarter of FY25.

This insight is drawn from the Monthly Economic Review for May 2025, released by the Ministry of Finance. According to the report: “Financial markets experienced volatility as a result of external developments. The significant escalation of trade tensions in early 2025, followed by a partial de-escalation in the second quarter, contributed to considerable volatility in the financial markets.” However, unlike in previous cycles, Indian government bonds remained relatively stable.

A major factor behind this resilience was the RBI’s record dividend transfer, which boosted the government’s fiscal headroom and improved investor sentiment. This fiscal support coincided with the release of positive growth data, with real GDP expanding by 6.5% in FY25, in line with the Second Advance Estimates.

The report notes: “The Indian government bond market exhibited stability and certainty in May, driven by factors such as the announcement of a record surplus dividend by the RBI and a robust growth reading for Q4 FY25.” This dual reinforcement from fiscal and economic indicators reassured investors and reduced the perceived risk associated with Indian sovereign debt.

As a result, “the risk premium on India’s government bonds decreased to 182 basis points as of 30 May 2025,” the report highlighted, signalling growing investor confidence in India’s macroeconomic stability.

While external challenges—from trade frictions to geopolitical tensions—persist, the performance of India’s bond market highlights the strength of the country’s domestic fundamentals. The Monthly Economic Review underscores that sustained demand, moderating inflation, and a strong external buffer have helped shield the economy from global shocks. The bond market’s steadiness is now being viewed as a bellwether of broader economic resilience.