What explains the spike in bond yields regardless of 125 bps in RBI repo fee cuts| Enterprise Information

In December 2025, India’s Financial Coverage Committee reduce the Repo Charge by 25 foundation factors. RBI Governor Sanjay Malhotra referred to India’s macroeconomic state of affairs as a uncommon Goldilocks interval, with low inflation at 2.2% and GDP progress at 8%. Nevertheless, the Authorities is getting restricted profit from the Goldilocks interval, because the yields on Authorities bonds (G-secs) haven’t moved down in sync with the RBI repo fee cuts. On this article, we’ll perceive why G-secs yields have risen within the current months regardless of the RBI repo fee cuts.

A buyer holds ₹100 notes close to a roadside foreign money trade stall in New Delhi. (Reuters)

RBI repo fee cuts in 2025

The RBI began the present curiosity rate-cutting cycle in February 2025 with a 25-basis factors reduce within the Repo Charge from 6.50% to six.25%. Since then, the RBI has reduce the Repo Charge a number of instances, bringing it all the way down to the present degree of 5.25% (February 2026). During the last one yr, whereas the RBI reduce the Repo Charge by 125 foundation factors from the height, the yields on G-secs haven’t moved in tandem.

(Supply: https://tradingeconomics.com/india/government-bond-yield)

The above chart reveals that yields on the 10-year G-secsfell within the first half of 2025, together with the Repo Charge cuts. The ten-year bond yields fell from ranges of round 6.74% in February 2025 to round 6.24% in June 2025. Within the June 2025 MPC assembly, the RBI reduce the Repo Charge by 50 foundation factors to five.50% and altered the coverage stance from ‘accommodative’ to ‘impartial’.

Since June 2025, yields on 10-year G-secs have modified path and began going up. From June 2025, the 10-year G-sec yields have climbed from ranges of round 6.24% to the present (February 2026) degree of round 6.75%. So, your entire yield decline has reversed, and gone again to the place it was a yr again in February 2025.

Why have the 10-year G-sec yields risen?

Within the earlier part, we noticed how the 10-year G-sec yields have risen in the previous couple of months. Now, allow us to perceive the explanations for the rise in yields.

1. Change in MPC stance in June 2025

The MPC modified its financial coverage stance from ‘accommodative’ to ‘impartial’ in June 2025. The markets interpreted that because the RBI will go for a protracted pause, with the chance of any future fee cuts low and inflation information dependent. In consequence, the G-secs bond yields rose by 10-12 foundation factors in a few days, publish the MPC assembly.

2. US tariffs on Indian items in August 2025

In August 2025, the US Authorities imposed 50% tariffs on Indian items. First, a 25% reciprocal tariff was imposed, and later a further 25% penalty tariff was imposed for Russian crude oil purchases. The tariffs led to the Indian Rupee depreciating in opposition to the US Greenback. In consequence, International Portfolio Traders (FPIs) offered Indian G-secs, to chop losses, ensuing from the Indian Rupee depreciation. FPI promoting of G-secs has pushed down costs and elevated yields.

3. GST charges rationalisation in September 2025

In August 2025, in his Independence Day speech, Prime Minister Narendra Modi introduced next-generation reforms, together with the rationalisation of GST charges. Put up the announcement, the GST Council introduced the GST fee discount on many items and providers from 12% to five%, and nil fee (0%) on some, efficient from twenty second September 2025.

Whereas the GST fee cuts benefitted clients, markets feared that the speed cuts will decrease the Authorities’s GST collections. The bond markets feared that decrease tax collections would improve the fiscal deficit and that the Authorities might borrow extra. In consequence, the G-secs yields went up.

4. India;s inclusion Bloomberg Bond Index delayed

The Indian G-secs have been anticipated to be included within the Bloomberg World Mixture Bond Index. Nevertheless, in January 2026, Bloomberg introduced the choice has been delayed as a result of operational and market-infrastructure points. It stated the choice shall be reviewed and an replace shall be supplied by mid-2026.

The inclusion of G-secs within the world bond index would have steadily introduced in billions of US {Dollars} in Indian G-secs steadily over the months. Nevertheless, the delay spooked sentiment, resulting in an increase in G-sec yields.

5. Greater Authorities borrowing in Funds 2026

On 1st February, the Finance Minister, Nirmala Sitharaman, offered Funds 2026. For FY 2026-27, the Authorities’s gross market borrowings are estimated at Rs. 17.20 lakh crores, and internet market borrowing from G-sec bonds is estimated at Rs. 11.70 lakh crores. The borrowing numbers are increased than market estimates.

On Funds Day, the bond markets have been closed because it was a Sunday. Nevertheless, on Monday, bond yields spiked following the Authorities’s funds announcement of the borrowing planning for 2026-27.

6. MPC announcement in February 2026

In its February 2026 assembly, the MPC left the Repo Charge unchanged at 5.25% and the ‘impartial’ coverage stance. The RBI upped the FY 2026 GDP progress forecast to 7.4%. The inflation forecast for Q1 FY 2027 has been raised from earlier 3.9% to 4.0%, and for Q2 FY 2027 from earlier 4.0% to 4.2%.

The rise in inflation forecast to 4% and above, which is near the RBI’s goal, reduces the chance of future Repo Charge cuts. In consequence, the bond yields hardened publish the MPC financial coverage announcement.

The place are G-sec yields headed?

Throughout the course of FY 2026-27, the bond markets will hold an in depth watch on how the Central Authorities proceeds with its borrowing program. The markets can even observe the issuances of State Growth Loans (SDLs) by varied State Governments.

A better provide of G-secs from the Central Authorities and SDLs from the State Governments than market expectations will hold yields at increased ranges or push them additional increased. Alternatively, decrease bond issuances by Central and State Governments, liquidity administration measures by RBI, a Repo Charge reduce by RBI, inclusion of Indian G-secs in world bond indices, a rise in FPI investments in Indian G-secs, and so on., can deliver down yields.