India sets maximum E for 2035 bond at 0.54 paisa
TL;DR
India's 2035 bond yield remains high at 6.7214% due to surging government borrowing, outpacing RBI support. Heavy issuance and fiscal pressures may keep yields elevated, impacting broader borrowing costs.
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India sets maximum E for 2035 bond at 0.54 paisa
India’s 2035 Bond Yields Remain Elevated Amid Surging Government Borrowing
India’s benchmark 6.48% 2035 government bond yield rose to 6.7214% in recent trading, reflecting persistent pressure from a surge in state and central government borrowing. The yield, a key indicator for long-term borrowing costs, has remained elevated despite the Reserve Bank of India's aggressive bond-buying program, which has purchased a record amount of securities this year. Traders anticipate the yield to hover between 6.69% and 6.75% as heavy issuance continues to outpace central bank support.
The government's borrowing plans have intensified in the final months of the fiscal year, with states targeting ₹445.5 billion in new debt this week alone, followed by a ₹320 billion auction of the 10-year 2035 bond. This surge in supply has dampened investor demand, forcing yields higher. While the RBI's interventions have provided some stability, analysts note that sustained state borrowing is diluting the central bank's impact.
A recent debt-switch operation, where the government exchanged shorter-term bonds for longer-dated securities, temporarily eased redemption pressures. However, with a record ₹17.2 trillion in gross borrowing planned for fiscal year 2026–27, including a heavy maturity pipeline of ₹5.47 trillion in 2026–27, market participants expect continued volatility. The move to extend debt maturities aims to smooth out near-term repayment obligations but may prolong elevated yields.
For investors, the stickiness of 10-year yields underscores broader risks. Higher sovereign borrowing costs could ripple through corporate bonds, mortgages, and business loans, even if policy rates remain stable. Meanwhile, oil prices—a major inflation driver for India— remain a wildcard, potentially delaying rate cuts and further pressuring bonds.
The RBI's next policy meeting on February 6 will be closely watched, though most economists anticipate a neutral stance. With fiscal consolidation progressing slowly and liquidity support limited, Indian bond markets face a delicate balancing act between government financing needs and investor sentiment.
