Indian Bonds Poised to Gain on Lower Fiscal Risks and Weak U.S. Yields

Indian government bonds are expected to strengthen on Friday after the government estimated a smaller-than-expected revenue loss from recent Goods and Services Tax (GST) cuts. This has eased fears of fiscal slippage and reduced concerns about additional borrowing, while lower U.S. Treasury yields are also supporting market sentiment.

According to market participants, the benchmark 10-year bond yield is projected to trade within the 6.46% to 6.50% range, after closing at 6.4934% on Thursday. The outlook has brightened since the government estimated a net revenue loss of about ₹480 billion ($5.46 billion) from the GST rate cuts—well below earlier market expectations of around ₹1 trillion.

Fiscal Outlook and Borrowing Pattern

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The lower revenue loss estimate has eased concerns that the government may need to borrow more aggressively, particularly in the second half of the fiscal year. Traders believe the Reserve Bank of India (RBI) may adjust the borrowing pattern for the October–March period to further stabilise the market. Discussions between the RBI and market participants are ongoing, raising hopes that long-term supply will be reduced, which could support bond prices.

One trader from a private bank noted that “supply fears have come down after the government’s revised estimate and on expectations of a borrowing pattern tweak. With falling U.S. Treasury yields adding to the momentum, further gains in bond prices are likely.”

Global Factors: U.S. Treasury Yields and Fed Policy

Global trends are also aiding Indian bonds. U.S. Treasury yields fell overnight, with the benchmark 10-year yield touching a four-month low. The weakness in yields followed labour market data that pointed to slowing employment growth, fuelling expectations that the U.S. Federal Reserve may resume rate cuts. The two-year U.S. yield also remained subdued in Asian trading hours, extending support to emerging market debt instruments, including Indian bonds.

Market Indicators

Alongside government bonds, India’s overnight index swap (OIS) rates are expected to remain steady after easing in the previous session. The one-year OIS rate closed at 5.51%, the two-year at 5.47%, and the five-year declined by over 4 basis points to end at 5.7450%.

In commodities, benchmark Brent crude futures slipped 0.4% to $66.75 per barrel, after falling 0.9% in the previous session. Lower crude prices generally provide relief for India’s inflation outlook, indirectly supporting the bond market.

Conclusion

With fiscal concerns easing after a smaller revenue loss projection and U.S. yields staying low, Indian government bonds are poised to gain further ground. Optimism around the RBI’s borrowing strategy and a stable global environment may help sustain the rally in the near term.