After steep fall in FY25, bond yields may decline further

10-year benchmark government securities are expected to ease 25 to 30 basis points to 6.25% to 6.30% in FY 26, building on last fiscal year's rather steep decline, amid expectations of further reductions in the policy repo rates and strong demand for bonds, experts said. Rates on home loans will likely ease, after being at a peak for three years.

The 10-year benchmark yield closed at 6.57% on Friday, the last trading day of FY25. Over this financial year, the 10-year yield softened 47 basis points, its steepest retreat in five years, according to LSEG data.

«There are tailwinds that should bring down the benchmark yield and our December 2025 forecast is 6.30% and yields could also soften further,» said Dhiraj Nim, economist & FX Strategist at ANZ Bank. «From a fiscal supply perspective, we are pretty disciplined and expectations of a fiscal deficit at 4.4% of GDP are supporting the market. From a demand perspective, banks will probably have a stronger appetite for bonds.»

Softer government bond yields reduce overall boring costs for companies, as g-sec yields are used as a benchmark for corporate bonds.

The announcement of the borrowing calendar for the first half of FY 26 also supported softening of yields as it was in line with market expectations of 54% to 55%. The government would be borrowing 54% — ₹8 lakh crore — of the total borrowing in FY26 during the first half.

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Heightened expectations of a rate cut are fueling softening of sovereign yields.

«Against the consensus view of approximately