Indian bonds have limited scope to rally as a shift in household savings to equities and changes to banks’ investment rules dampen demand for long-term debt, according to a senior executive at ICICI Bank Ltd.
The 10-year bonds barely moved in 2025 despite four rate cuts and record debt purchase plans by the central bank. Yields are likely to stay in the 6.50 per cent-6.75 per cent band this year, says Shailendra Jhingan, head of treasury at India’s second-largest private lender, suggesting little room for further gains from current levels near 6.60 per cent.
“There is a structural change which has happened at a macro level — savings are moving toward equity compared to fixed income,” Jhingan, who has around three decades of trading experience, said in an interview in Mumbai. Revised investment rules have also made banks more wary about buying long-term bonds, he said, as the rules limit their ability to shift securities between trading books.
Domestic investors bought more than $80 billion of stocks in 2025, driving a 10th straight year of gains in benchmark equity indexes despite record foreign outflows, according to Bloomberg-compiled data. At the same time, tax changes have reduced the appeal of debt mutual funds in the past couple of years, while pension funds — large holders of long-dated bonds — have been allowed to invest more in equities.
India’s sovereign bond yields have climbed around 35 basis points since May-end, keeping borrowing costs elevated after the RBI slashed interest rates by 125 basis points in 2025. The scope of further easing is limited, Jhingan said, keeping the pressure on the economy facing the toughest US tariffs in Asia.
Supply pressures are set to intensify in the financial year starting April 1, he said. Jhingan estimates federal bond sales of ₹16.5 lakh crore ($183 billion) and state issuance of ₹13.5 lakh crore, taking total debt supply to about ₹30 lakh crore. That’s up from ₹27.5 lakh crore this year.
The country’s 10-year bond yields closed three basis points higher on Monday as state governments announced a massive ₹5 lakh crore of debt sales for the current quarter, almost double the amount sold in the previous one.
Over the longer term, the relatively muted yield moves despite large liquidity injections reflect improved risk management, Jhingan said. He cited a phase in 2016, when a surge in banking system liquidity sent yields tumbling before an abrupt reversal.
Banks learned from that experience and “are behaving in a more mature manner”, which explains why yields are not falling, he said.
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