Indian bond markets are treading cautiously as investors look for clarity on the Reserve Bank of India’s policy direction, potential bond-market support, and the broader liquidity stance, according to Radhika Rao, Executive Director and Senior Economist at DBS Bank.
The 10-year benchmark yield continues to hover stubbornly above 6.5%, locked in the 6.45%–6.55% range since late October — nearly 25 bps higher than June levels. Markets are now watching the ₹300 billion government bond auction on Friday for cues on investor appetite.
A key near-term focus is whether the RBI will step in with bond-buying support. Recent increases in secondary market purchases, Rao noted, were largely linked to replacing maturing securities rather than an explicit yield-management effort. Markets expect any formal announcement on open market operations only towards late-2025 — a move that could meaningfully boost sentiment.
Adding to the mix, reports suggest India’s potential inclusion in the Bloomberg Global Aggregate Index has gained traction after positive feedback from major foreign investors. A formal update may come in January, though the initial enthusiasm failed to sustain a meaningful drop in yields. FAR-eligible securities have already seen their weightage increase within Bloomberg’s EM Local Currency Government Index.
Meanwhile, the RBI’s December policy meeting remains a close call. With Q2 GDP likely to print above 7% and October inflation easing to a series low, the central bank could still consider a rate cut. Rao expects the MPC to flag forward-looking growth risks, arguing that benign inflation provides adequate room for easing.
On the trade front, discussions on a proposed US-India deal continue, with Commerce Minister Piyush Goyal insisting the agreement must be “balanced and fair.” In parallel, the government has cleared a ₹450 billion package to support exporters — particularly MSMEs — impacted by higher US tariffs. The package includes a ₹200 billion credit guarantee scheme offering collateral-free working capital, and an expanded Export Promotion Mission with a five-year ₹250 billion outlay. The fiscal impact, Rao noted, will be modest and spread over several years.
