India’s biggest borrowing plan pushes bond yields to one-year high

Core Viewpoint - India's benchmark bond yields have reached their highest level in over a year following the government's announcement of a record debt-sale plan that surpassed analysts' expectations [1] Group 1: Government Debt and Borrowing - The Indian government plans to borrow ₹17.2 lakh crore ($187 billion) in the fiscal year starting April 1, which is 18% higher than the current year's borrowing and exceeds the ₹16.5 lakh crore forecast [1] - The budget deficit is projected to decrease to 4.3% of GDP in the upcoming fiscal year from an estimated 4.4% in the current year, despite increased gross borrowing due to rising bond redemptions [5] - Net borrowing for the next fiscal year is estimated at ₹11.7 lakh crore, slightly above the revised figure of ₹11.3 lakh crore for the current year, with redemptions expected to rise nearly 70% to about ₹5.5 lakh crore [6] Group 2: Bond Yields and Market Reactions - The 10-year bond yield has increased by as much as eight basis points to 6.78%, the highest since January 17, 2025, with expectations that it may reach 7% in the coming weeks [2] - Rising borrowing costs could exacerbate pressures on an economy already facing challenges from high US tariffs, while the Reserve Bank of India (RBI) has limited capacity to further reduce interest rates [3] - The RBI's foreign-exchange interventions have tightened liquidity in the banking system, impacting bond demand, prompting the central bank to increase bond purchases to inject cash into the system [7] Group 3: Future Outlook and Risks - Active liquidity management will be essential to prevent further increases in bond yields, as indicated by market experts [4] - There is a risk that bond yields may exceed earlier expectations, even with RBI's support through open-market operations [8]