Govt bond yields to edge lower due to ease in inflation, strong fiscal health

Benchmark 10-year government bond yields are projected to decline through February, fueled by easing inflation, stronger fiscal indicators, and moderated crude oil prices, according to a recent analysis.

Crisil Intelligence anticipates the 10-year government bond yield will move between 6.38–6.48% by February 28, 2026, down from its current level of 6.54%. Similarly, state development loan yields are expected to soften from 7.15% to a 6.98–7.08% range, while 10-year corporate bond yields may drop to 6.98–7.08% from 7.15%.

“Monetary policy may see easing as inflation cools, though the RBI will maintain a data-driven approach given global uncertainties,” the report stated. It highlighted domestic consumption as a primary growth driver, supported by controlled inflation, GST adjustments, and tax relief measures.

The agency forecasts India’s GDP growth at 7% for FY26 compared to 6.5% in FY25, with CPI inflation expected to moderate to 2.5%. Key factors include reduced food inflation due to agricultural improvements, stable oil prices, and GST benefits.

Fiscal health improvements are underway, with the central government targeting a reduced deficit of 4.4% of GDP in FY26 versus 4.8% in FY25. Meanwhile, crude oil prices are projected to average $60–65 per barrel in 2026, down from $65–70 anticipated for 2025.

Near-term yield movements could be influenced by liquidity shifts, US tariff negotiations, FPI inflows, rupee volatility, central government borrowing plans, and Federal Reserve decisions.

(With inputs from IANS)