Government Bonds

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.

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.

Investing in bonds is essential for portfolio diversification and stability, especially during equity market volatility. Recent economic changes and interest rate trends in India present a favorable opportunity for bond investments, with yields now more attractive than traditional fixed deposits.

Post the June policy, where RBI front-loaded policy action with a 50bps cut, G-sec yields have only risen higher, both short-end and long-end. This has effectively reduced the transmission of the rate cut, especially at the long-end.

Bond prices drop as yields rise due to interest rate changes and policy shifts, impacting fixed income investors, liquidity, and long-term portfolios across volatile bond markets.

The surge reflects elevated borrowing costs as the government has continued to service loans contracted at higher rates, especially during the pandemic years, despite a moderation in bond yields since FY24.

Step-by-step guide explains government bonds investment via RBI Retail Direct and exchanges, covering demat setup, KYC, auctions, online payments, benefits, and risks to help retail investors buy G-Secs confidently.