Fresh market borrowings for the govt getting pricier amid a tightening cycle
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Key Takeaways:
- The secondary market yield on the benchmark 10-year G-Sec (6.94% GS 2036) surged to 7.40 per cent since July 2026, with auction cut-offs rising 67 basis points and increasing government borrowing costs amid a tightening monetary cycle.
- The RBI’s H1 FY27 weighted average issuance yield rose to 7.0 per cent from 6.6 per cent a year earlier, reflecting persistent market pressure.
- The outstanding stock of the 6.94% GS 2036 reached ₹2.38 lakh crore, with new 10-year benchmark issuance likely at indicative coupons of 7.35–7.50 per cent.
The secondary market yield on the benchmark 10-year Government Security (6.94% GS 2036) surged to 7.40 per cent, with weekly auction cut-offs rising since July 2026, increasing government market borrowing costs amid a tightening monetary cycle.
Market experts project the forthcoming 10-year G-Sec issuance will carry a coupon of 7.35–7.50 per cent, against the current on-the-run benchmark’s 6.94 per cent, factoring rising crude oil prices, US sovereign yields, geopolitical risks, and anticipated RBI rate hikes.
Government Borrowing Scale
The outstanding stock of the 6.94% GS 2036 has reached ₹2.38 lakh crore, prompting expectations of a new 10-year issuance. In 2025, the government transitioned from the 6.33% GS 2035 (₹1.83 lakh crore outstanding, issued May 5) to a new 6.48% GS 2035 on October 6, when that threshold was breached.
The RBI’s monetary policy report for H1 FY27 indicated a weighted average issuance yield of 7.0 per cent, up from 6.6 per cent in the same period of the previous year.
Since July 2026, the cut-off on the on-the-run 6.94% GS 2036 climbed from 6.7275 per cent at the July 3, 2026 auction to 7.3955 per cent at the October 16, 2026 auction—a rise of 67 basis points.
Yield Momentum
Rockfort Fincap’s Venkatakrishnan Srinivasan noted the government bond market remains under pressure, with the 6.94% GS 2036 cut-off rising to 7.3955 per cent on October 16 from 7.1450 per cent on September 25, a hardening of 25.05 basis points over three weeks.Inflation concerns
A 25 basis point repo rate increase to 5.50 per cent on October 7, alongside expectations of further tightening, elevated crude prices, inflation concerns and global bond-market pressures, have weighed on bond market sentiment.
Increasing yields raise the cost of fresh government borrowing. The RBI’s indicative borrowing calendar specifies approximately ₹1.73 lakh crore of 10-year issuance between November 2026 and March 2027.
Borrowing Calendar
Srinivasan noted the existing 6.94% GS 2036 outstanding has reached ₹2.38 lakh crore, making a new 10-year benchmark issuance possible. Indicative coupon for a new security could range 7.35–7.50 per cent, subject to market conditions and government pricing decisions.
Axis Mutual Fund’s report suggests the RBI may hike rates by a further 50–75 basis points in the near term, bringing the operative rate toward 6.0–6.25 per cent.
Policy Outlook
The tightening cycle’s depth and duration will remain data-dependent, with key monitors including West Asia conflict developments, crude oil price trajectories, global bond yields, domestic core inflation, and growth resilience.
Published on October 20, 2026
Q: What drove the 67 basis point rise in 10-year G-Sec cut-offs since July 2026?
The cut-off on the on-the-run 6.94% GS 2036 rose from 6.7275 per cent on July 3, 2026 to 7.3955 per cent on October 16, 2026—a 67 basis point increase—amid a tightening monetary cycle, elevated crude oil prices, US sovereign bond yields, and geopolitical tensions.
Q: What coupon rate is expected for the upcoming 10-year G-Sec issuance?
Market experts and Axis Mutual Fund project the new 10-year issuance will carry a coupon in the range of 7.35 per cent to 7.50 per cent, up from the current on-the-run benchmark’s 6.94 per cent, factoring in RBI rate hike expectations and macroeconomic volatilities.
Q: How much 10-year G-Sec issuance does the RBI calendar outline for H2 FY27?
The RBI’s indicative borrowing calendar provides for approximately ₹1.73 lakh crore of 10-year issuance between November 2026 and March 2027.
Q: What is the current outstanding size of the 6.94% GS 2036 benchmark?
The outstanding stock of the existing 6.94 per cent GS 2036 has reached ₹2.38 lakh crore, triggering expectations of a new benchmark issuance.
Q: How did H1 FY27 issuance yields compare to the previous year per the RBI’s monetary policy report?
The weighted average yield of issuances in H1 (April–September) FY27 was 7.0 per cent, higher than 6.6 per cent in the same period of the previous year, as noted in the central bank’s latest monetary policy report.
