New Delhi, Apr 14 (KNN) India’s fixed income market is expected to remain cautious in the near term, with bond yields likely to stay elevated due to persistent global inflation risks and domestic policy uncertainty, according to a report by Union Bank of India.
The report noted, “Overall, the market bias remains cautious, with yields likely to stay elevated amid inflation risks and policy uncertainty,” adding that any short-term gains in bond prices are likely to be driven by technical factors rather than a fundamental improvement in economic conditions, reported ANI.
Global Pressures Weigh on Markets
Rising geopolitical tensions in West Asia have pushed crude oil prices above USD 100 per barrel, heightening global inflation concerns. This has led to an upward movement in bond yields across major economies, including the United States and Japan, with US 10-year yields hovering around 4.45–4.55 per cent.
The report highlighted that the shift reflects a broader move away from traditional safe-haven demand towards inflation-driven repricing of bonds, which is also exerting pressure on emerging markets such as India.
RBI Maintains Hawkish Stance
In India, the Reserve Bank of India (RBI) has kept the repo rate unchanged at 5.25 per cent while maintaining a cautious, anti-inflation stance. The central bank has slightly raised its inflation forecasts due to higher crude prices and imported inflation, reducing the likelihood of rate cuts in the near term.
The RBI continues to follow a ‘withdrawal of accommodation’ policy to ensure that financial conditions do not ease prematurely.
Liquidity Management in Focus
The central bank is also actively managing liquidity conditions. It plans to absorb excess liquidity through instruments such as Variable Rate Reverse Repo (VRRR) auctions to align short-term interest rates with its policy stance.
Although liquidity in the banking system remains surplus—largely due to government spending—the RBI is expected to gradually reduce this through calibrated measures.
Domestic Yield Trends and Regulatory Support
India’s 10-year government bond yield has risen to around 7.14 per cent, reflecting both global and domestic pressures. However, a recent bond auction witnessed strong demand, which temporarily eased yields due to improved sentiment and short-covering.
On the regulatory front, the RBI has removed the requirement for banks to maintain an Investment Fluctuation Reserve (IFR), allowing these funds to be reclassified as core capital. This move is expected to strengthen bank balance sheets.
(KNN Bureau)
