The signals (indications) from the bond markets are that investors in this asset class want more (returns) for their invested money. Experts feel that the days of easy money will not come back anytime soon.
Bond markets globally are signalling that they need some clarity, primarily on the geopolitical front, before any rally is seen in this asset class.
“Bond markets are signalling heightened inflation risk for economies across the globe,” says Saurav Ghosh, co-founder of Jiraaf. In India, the has moved back above 7%, rising from 6.8% in April 21 to around 7.1% in May, indicating that markets are beginning to price in the risk of a more hawkish RBI response if inflation pressures persist.
Globally, the signal is even sharper. The has crossed 4.5%, while the 30-year yield has moved above 5% for the first time since 2007, reflecting the market’s belief that the US rate-cut cycle is virtually over. If the West Asia conflict keeps energy prices elevated, markets may even start pricing renewed rate-hike risk in the US.
“ globally are indicating that investors are demanding higher returns to hold long-term debt,” says Bharath Rathore, Executive Director, Anand Rathi Wealth Limited.
Germany’s 10-year bond yield hit its highest since 2011, while Japan’s 30-year yield reached a historic high, and the UK’s 30-year gilt yield touched levels last seen in 1998.
This is a coordinated global selloff in bonds, not just an American story. In India, the 10-year G-Sec yield is hovering around 7.08%, and the message from the bond market is similar.
Investors remain cautious and are demanding higher yields because long-term bond markets are reacting not just to RBI rate cuts, but also to inflation expectations, crude oil prices, government borrowing, global bond yields and overall market sentiment. “Markets are increasingly pricing in the possibility that inflation and interest rates could stay elevated for longer than earlier expected,” says Rathore.
“The domestic and foreign bond markets are sending a clear message: The days of easy money are not coming back anytime soon,” says Harsha Vardhana VM, Group CEO, Atom Financial Services. The USA, UK, Japan, and Germany are all being forced to reprice long-dated paper higher as persistent inflation expectations, ballooning fiscal deficits in developed economies, and the near-complete evaporation of Fed rate-cut expectations for 2026 all push in that direction.
What is important is the context: The RBI has cut monetary rates by a cumulative 125 basis points since early 2025, yet the benchmark yield has actually firmed by 45 basis points over FY26. This is the paradox of easing. Monetary policy is dovish, yet the bond market is not listening. The yield curve has steepened dramatically, with the 10-year to 3-month spread at 171 basis points as of early May, indicating that markets expect short rates to remain low but are demanding a higher premium for long-dated risk. Add to this the and crude oil above $107 per barrel, and the bond market is effectively telling policymakers — We need geopolitical clarity before we rally, opine experts.
What’s driving bond yields?
On the outside, three factors dominate, says Vardhana. The most important is the path of the Iran-US conflict and its effect on the pricing of crude oil. Brent has risen from around $73 pre-war to more than $107 a barrel, and any further escalation, especially around the Strait of Hormuz, could see prices move towards $120-$130, which is untenable for India’s inflation and current account deficit trajectory for bond markets.
The second, he says, is the ’s policy stance. With the probability of rate cuts for 2026 crashing to just 8%, any fresh hawkish signal from the Fed would boost the dollar, lead to FPI outflows from Indian debt, and drive yields up, he cautions.
Third, the rupee is a transmission mechanism. “At 95 rupees to the dollar, every further depreciation means more imported inflation and more reserves drained by RBI intervention,” Vardhana says.
Domestically, the two biggest variables would be the monetary policy decisions of the RBI in its June and August and the pace of the government’s ₹17.2 lakh crore borrowing program. At auctions, supply outstrips demand, depending on how much the RBI absorbs through OMOs.
Monthly CPI prints are also crucial. The RBI’s FY27 inflation forecast is 4.6%, above its 4% comfort target; a CPI surprise above 5% will rule out rate cuts altogether. On the other hand, a normal monsoon bringing down food inflation or an RBI surplus transfer reducing net government borrowing could be positive surprises that push yields lower. Also, watch the JPMorgan and FTSE bond index flow data. Passive FPI inflows under the India index inclusion mandate are a structural tailwind once risk sentiment stabilises.
Bond market outlook
“Our base case remains with the assumption that the 10-year G-Sec yield will stay high and range-bound within 6.90% to 7.15% till September 2026,” said Vardhana about the outlook for Indian bond yields in the near term. The sticky yields are well entrenched. Crude oil above $100 per barrel constrains the RBI’s ability to cut rates further. A record gross market borrowing calendar of ₹17.2 lakh crore for FY27, up 17.7% year-on-year, creates persistent supply pressure. Global yields at multi-year highs make Indian bonds less attractive to foreign portfolio investors, who have already pulled out more than ₹2 lakh crore in 2026.
There are two criteria for yields softening. A meaningful de-escalation in the Middle East with a consequent reduction in the price of Brent crude. Next, if the RBI continues with its OMO (open market operations). It absorbed almost 47% of the government bond issuance in FY26 through open market operations, and continuation of this support would cap yield spikes.
“In the meanwhile, the investor’s best friends are patience and accumulating income,” says Vardhana.
(Manik Kumar Malakar is a freelance writer. He covers the bond market, personal finance and equity market.)
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.