Government Bond

Fixed income is for stability. In 2025, interest rates on fixed deposits fell, while yields on government bonds increased. The interest rates on corporate bonds saw some moderation but held steady.

The benchmark 10-year yield ended at 6.5398%, after closing at 6.6328% on Tuesday, dropping the most in a single ⁠session since May 13. Bond ⁠yields move inversely to prices.

As long as India’s growth engine stays strong and inflation behaves, foreign investors continue to earn well for holding Indian debt. In short, the Fed isn’t taking away India’s yield advantage anytime soon.

Market participants argue that without a durable infusion of ₹2-2.5 trillion and structural shifts in bank balance sheets, the monetary easing cycle will fail to transmit to the broader economy.

Traders fully expect the BOJ to raise interest rates by a quarter point on Friday, putting most of the focus on Governor Kazuo Ueda's post-meeting news conference for clues on the path for policy in 2026.

The 10-year benchmark yield stands at around 6.45%–6.55%, while longer maturities in the 13–15 year range offer yields of 6.86%–6.9%. This pickup over the benchmark makes it attractive, particularly as inflation stays contained and the RBI edges closer to a rate-cutting cycle.

In this phase, the most compelling strategy is to lean into accrual, layer in selective long-duration government bonds and pick credit judiciously — stay active, stay selective.

As we would likely approach the end of the rate easing cycle by the end of FY2026, we could see incremental reallocation towards corporate bonds from government securities.

Bond market bulls drove the 10-year yield below a stubborn 6.50% level, indicating broader positivity.

State fiscal policy is facing challenges with a rising fiscal deficit, increasing bond issuances, and slowing tax revenue. While historically fiscally prudent, states are now struggling due to reduced grants from the Centre and a decline in income growth, impacting overall financial stability.