10-year benchmark G-Sec yield drops to 7 pc in May amid favorable regulatory shifts

NEW DELHI: The yield on the 10-year benchmark government security (6.48% GS 2035) ended May at 7.00 per cent, dropping by two basis points from its April closing position of 7.02 per cent, according to the latest market data from a Crisil Intelligence report.

The report also mentioned that “the benchmark G-sec yield would likely be in the 6.93-7.03% range through the three-month horizon.”

The domestic debt market received notable structural updates during this period, which modified the operating landscape for overseas capital. According to the Crisil Intelligence report, the market dynamics shifted as “the Reserve Bank of India’s (RBI) decision to hold repo rate at 5.25%, with a neutral stance, alongside expanding the fully accessible route (FAR) universe and exempting foreign investors from capital gains, has provided near-term support.”

Global economic pressures and macroeconomic variables continue to interact with these domestic regulatory adjustments. The report noted that “in the same period, policy moves by the US Federal Open Market Committee (FOMC) and expected elevated inflation will keep the yields in the 6.92-7.02% range.” This dual pressure outlines the immediate boundaries for sovereign paper trading in the upcoming weeks.

Looking further into the fiscal quarter, the report projected that a broader basket of domestic macroeconomic triggers will dictate the trajectory of sovereign yields through the monsoon months.

The report detailed that “the movement of the 10-year G-sec yield through August 2026 is likely to hinge on the RBI’s policy direction, the pace of government and state borrowings in the second quarter of fiscal 2027, foreign portfolio investor (FPI) participation in the FAR framework, and movement of crude oil prices and the rupee as the West Asia conflict evolves.”

Beyond fiscal policy and regional geopolitical risks, structural shifts in global bond indices are anticipated to alter international demand for Indian sovereign debt obligations. The report observed that “the awaited inclusion of G-secs in the Bloomberg Global Aggregate Index could exert downward pressure on the yields.”

However, counter-balancing factors remain on the horizon, as “FOMC policy decisions and domestic fiscal slippage risks would also influence the yield direction”. As a result of these overlapping dynamics, the benchmark paper is projected to trade within a tightly bound corridor over the next ninety days.

For parallel fixed-income assets, the report showed actual May end levels for the 10-year State Development Loan (SDL) yield at 7.71 per cent, with projected targets placed at 7.62-7.72 per cent for late June and 7.63-7.73 per cent for late August.

Similarly, the 10-year corporate bond yield ended May at 7.82 per cent, with projected trading bands of 7.72-7.82 per cent and 7.73-7.83 per cent for the June and August horizons respectively. (ANI)