The GST rate cuts had a salubrious impact on the yields of Government Securities (G-Secs), with the yield of the 10-year benchmark G-Sec softening about 5 basis points as market players shrugged off fears that the Government may borrow more to overcome the fiscal impact of the cuts.
The yield of the 10-year benchmark (6.33 per cent GS 2035) declined to close at 6.49 per cent from the previous close of 6.54 per cent, amid ample liquidity in the banking system.
RK Gurumurthy, Treasurer, Karnataka Bank, said: “The GST cut is a big positive and should be a shot in arm during the festival season. Coming against the backdrop of sufficient liquidity and benign rates, this should develop into a growth momentum.
“One worry lingers if the GST cuts will dent revenue collections and lead to increased borrowings. We will have to wait to see how the borrowing calendar looks like as it gets announced later this month and how the revenue shortfall arising out of the GST cuts get balanced.”
Gurumurthy emphasised that four tranches of CRR (cash reserve ratio) cuts start taking effect from Saturday, implying that bond supplies will not drain up or impact liquidity pricing – the steepness of the rate curve should also be seen as encouraging duration play.
Once the uncertainties about tariffs abate, bond yields should revert to levels seen in Q1, he added.
Nuvama Wealth Management, in a report, noted that the 10-year benchmark opened 1 basis point lower at 6.53 per cent as the fears of extra borrowing in FY26 eased after the outcome of the GST Council meeting late Wednesday.
The government estimates a net revenue loss of around ₹48,000 crore from the GST Council’s decision to move to a two-slab goods and services tax rate structure to be effective from September 22.
“The market participants were expecting an estimate of ₹1 lakh crore. The fall in the US Treasury yields overnight after JOLTS job openings also supported the slump in local yields.
“The 10-year benchmark closed 5 bps lower at 6.49 per cent Vs 6.54 per cent, as participants were keen to stock up on long duration bonds on hopes that the government might reduce the share of these bonds in its October-March borrowing calendar,” Nuvama Wealth Management’s fixed income team comprising Parnali Kshirsagar, Harshad Gupta, Aditya Gore and Sahil Mankotia said.
Meanwhile, the RBI received a robust response to its 8-day variable rate reverse repo (VRRR) auction, with Banks placing offers to deploy liquidity amounting to Rs 1,80,955 crore against the notified amount of ₹1.50 lakh crore.
The RBI accepted offers aggregating ₹1,50,023 crore at the weighted average rate of 5.49 per cent. Banks’ had surplus liquidity amounting to ₹2,97,367 crore as at September 03, 2025, per RBI data.