A low inflation environment and the government’s clear-cut borrowing schedule, experts feel that bonds must be on the radar of investors today.
While bond yields and prices may see short-term fluctuations (since they move inversely), these are expected to average out over time, making current offerings attractive.
“Over the next six months, yields are likely to oscillate within a relatively tight range if the RBI doesn’t announce a rate cut,” says Saurav Ghosh, Co-founder of Jiraaf.
The government plans to borrow ₹6.77 lakh crore through dated securities in H2 FY26, across tenors (periods) ranging from 3 to 50 years, with a focus on the 5-year, 10-year, and 15-year tenors.
The issuance mix indicates a strategic shift away from the ultra-long tenors (>20 years) bucket. The borrowing is in line with fiscal deficit targets, indicating a lesser chance of a slippage despite a possible decrease in GST revenues.
In a stable policy scenario, a sustained supply would act as a ceiling on price rallies. will remain range-bound unless there’s a swing in fiscal confidence or demand. “Any short-lived dips could be reversed as the market absorbs the auctions,” says Ghosh.
“Based on a combination of domestic (low inflation, robust ) and global (US Treasury yield, crude oil prices) factors together, the outlook points to a stable bond market with the 10-year benchmark remaining confined within the 6.50–6.70% band. For investors, this means prices will move only narrowly,” says Tushar Sharma, Co-Founder of Bondbay, Platformed by Dexif Securities.
So we should now “Carry” out a thorough survey of the possibility of bonds.
“Carry” your coupon rates
Carry in upper case and quotation marks is inadvertent here, as it refers to a concept in finance, especially in bond terminology.
In the context of bonds, “carry” refers to the regular income investors earn by holding a bond, mainly through its coupon (interest payments), relative to its purchase price.
When yields are high, as they are now, the carry becomes attractive because investors can lock into better interest income for the life of the bond, regardless of whether yields move higher or lower in the near term.
For example, if you buy a 10-year G-sec at a yield of 6.5%, you’re essentially locking in 6.5% annual returns from interest.
Thus, even if the price of the bond fluctuates in the short run, the carry ensures steady income as long as you hold it.
So in context, “opportunities to lock into attractive carry” means that investors can benefit from current elevated yields to secure higher fixed returns before conditions change.
“Yes, bonds at current carry are attractive for retail investors, particularly in a stable inflation environment in the near term,” says Harsimran Sahni, EVP & Head – Treasury, Anand Rathi Global Finance.
The current elevated yield levels for the shorter end (debt securities with short maturities) offer investors a good opportunity to lock into relatively high coupons that may not persist once the rate cut happens. “For conservative investors looking for steady income, the current carry provides a sure cash flow with lower volatility compared to the equity market,” says Sahni.
“Bonds at current carry are indeed attractive for retail investors, especially when seen against the backdrop of very low inflation and limited price volatility,” says Sharma.
With CPI inflation at just above 2% and 10-year government securities yielding around 6.55–6.60%, the real return is attractive. Even SDLs (state development loans) and high-quality corporates are offering meaningful spreads, giving investors steady, predictable income that comfortably beats inflation. In bonds, “spread” refers to the difference in yield between two different debt instruments, most commonly a corporate bond and a benchmark government bond.
To look at bond’s close cousin, at 6.25–6.75% deliver similar nominal returns but offer lower flexibility and often lower post-tax benefits.
Looking at the indicative levels: 10-year G-Secs are yielding about 6.55%, 10-year SDLs closer to 6.90%, AAA corporates in the 7.25% zone, and large-bank 5-year deposits around 6.50%. After adjusting for inflation, real returns are roughly 4.5–5.2% across bonds, compared with ~4.4% for FDs. This shows that bonds are better than deposits, particularly when factoring in liquidity and tradability.
We must conclude that bonds at current carry offer a compelling opportunity for retail investors: they provide stable, inflation-beating income with limited risk, says Sharma.
“Currently, bond yields are high, and we expect the same to fall going forward in a declining interest rate environment since the rate cut transmission is yet to be seen in the bond market. Going forward in the near term, any new bond issuances will be issued at lower coupon rates,” says Abhishek Bisen, Head, Fixed Income, Kotak Mahindra AMC.
So bonds are attractive at current yields. Nice. Is this the time to buy? Or wait some more?
Bonds: Time to buy or wait?
“Retail investors today are in a sweet spot because inflation is very low (~2%) while bond yields are still in the mid-6% range. That means the real income (carry) from fixed income products is unusually high. The key challenge for retail investors is how to lock into these rates before either inflation rises or yields compress once foreign inflows start in 2026,” says Sharma.
“For investors holding bonds till maturity, the carry compensates for interim price volatility. For retail investors seeking stable income or diversification away from equities, these conditions are favourable,” says Ghosh.
But, what are the instruments or investing options that will allow investors to benefit from the current carry?
“Retail investors can consider the dynamic bond category due to its ability to change in line with the macro factors,” says Manish Banthia, CIO – Fixed Income, ICICI Prudential AMC. Currently, bond markets seem to be at a neutral point. Therefore, being dynamic is the optimal way to navigate the current market.
Why dynamic bond fund makes sense now
In India, a dynamic bond fund is an actively managed debt mutual fund that invests in various debt instruments with flexible maturities.
“Given the current market scenario, investors can allocate to target maturity funds. However, investors should allocate dated based on their return, risk, taxes, time, legal, liquidity, and other unique constraints,” says Bisen.
A Target Maturity Fund (TMF) is a passive debt fund that invests in a portfolio of debt instruments (like government securities) with a pre-determined maturity date.
“We feel that the current time is opportune for a tactical duration call. Thus, investors should increase allocation to duration funds,” says Kaustubh Gupta, Co-Head Fixed Income, Aditya Birla Sun Life AMC.
A tactical duration call in bonds is a deliberate investment decision to adjust a portfolio’s interest rate sensitivity based on a near-term view of where interest rates are heading.
“Retail investors can subscribe to government securities via electronic platforms (e.g. RBI’s G‐Sec platform or broker gateways) at primary auctions,” says Ghosh.
If retail investors are looking for higher coupon rates, they can explore the corporate bond market. They can access the corporate bonds via various Online Bond Platform Providers (OBPP) and build a diversified bond portfolio of investment-grade (AAA to BBB-rated) bonds, note experts.
“Investors could look at Debt mutual funds in categories like short-term, target-maturity funds, or GILT funds, which allow investors to benefit from today’s yields while also diversifying risk,” says Sahni.
“Retail investors can buy government securities, state loans, or top-rated corporate bonds through , brokers, or bond platforms. Choosing maturities in the 2–5 year zone locks in coupons in the 6.25–7.25% range with very low credit risk,” says Sharma.
Longer maturities (10Y+) can also be considered if the investor wants to secure carry for the long term, though with higher price volatility.
Short Duration and Banking & PSU Debt Funds are suitable for investors seeking steady carry with relatively low volatility. They won’t lock in yields but provide diversified exposure with daily liquidity, informs Sharma.
“The conclusion is that the most efficient way for retail investors to lock into current carry is through directly buying high-quality bonds of 3–10 year maturity. These options allow them to secure today’s unusually high real yields in a low-risk, predictable structure,” says Sharma.
“The idea is to invest now, before yields drop, and capture current income streams,” says Ghosh.
3 things to know before investing:
Upside: Stable income streams from elevated coupons, potential for capital gains if yields decline.
Downside: If yields rise further due to inflation or fiscal slippage, mark-to-market losses may occur for investors who exit early.
Liquidity: Retail investors should be mindful of liquidity in certain instruments. To avoid that uncertainty, retail investors might want to invest in diversified GILT mutual funds or corporate bond mutual funds. – Anand Rathi Global Finance.
Match your time and risk horizons
If an investor has a short-term horizon and is looking at just a higher carry of a long-term bond, then they risk losing some capital if the yields move up sharply.
In the current environment, we believe reinvestment risk is the biggest risk an investor is taking by investing long-term investment money in short-term bonds. Presently, long-term bonds have relatively higher yields, and as explained above, the longer-duration bonds benefit from a fall in interest rates.
Overall, investors should maintain their asset allocation based on their risk, return, tax, time, legal, liquidity, and other constraints. – Kotak Mahindra AMC.
Stay the course
While current carry offers passive income, it comes with caveats: bond prices remain sensitive to fiscal signals, global cues, and auction dynamics. With the large H2 borrowing program ( ₹6.77 lakh crore), G-sec yields may remain range-bound for the coming months. Exiting early could result in capital losses; staying until maturity will reduce timing risk. Retail investors should view bonds as income-generating vehicles with potential volatility, rather than speculative trades. – Jiraaf.
Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.