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India's benchmark 10-year government bond yield is unlikely to see a significant decline in November and could remain under upward pressure amid inflation risks, tighter banking liquidity and uncertainty over global interest rates, according to a Bank of Baroda Research report.
The report expects the 10-year yield to trade in the range of 7.25-7.35 per cent during November, with risks tilted towards a further rise. It said the Reserve Bank of India's shift towards calibrated tightening and indications of a potentially steeper rate cycle had kept long-term borrowing costs elevated. Indias 10Y yield is unlikely to show much downward correction, the report said, pointing to rising inflationary risks and resilient domestic economic activity. The benchmark yield rose by 23 basis points in October to 7.41 per cent from 7.19 per cent in September, before falling to 7.32 per cent on Monday. The report noted that volatility in the domestic bond market also increased, with October recording the highest volatility since May 2026. Tighter liquidity conditions have added to the pressure. The average banking system liquidity surplus fell sharply to Rs 2.4 lakh crore in October from Rs 7.8 lakh crore in September. Faster credit demand, particularly during the festive period, could keep liquidity conditions tight in the coming months, the report said. The research also identified global bond yields, crude oil prices and domestic liquidity as important factors influencing Indian government bond yields. A separate analysis of monthly data by Bank of Baroda found that these variables, along with currency movements, explained a little over half of the changes in the 10-year yield. However, the exchange rate was not statistically significant in the analysis. The analysis found that a USD 10 increase in Brent crude prices could raise the domestic 10-year yield by around 3 basis points. A 50-basis-point increase in US Treasury yields could push India's benchmark yield higher by around 9 basis points. In a conditional assessment, the research note said that if the RBI delivers at least two rate hikes totaling 50 basis points by March, the 10-year government bond yield could rise to 7.75 per cent. The November outlook will also depend on global developments, including the US midterm elections and the West Asia situation, while the RBI's policy direction and domestic liquidity conditions remain key factors for bond market movements. (ANI)
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