India’s 10-Year Bond Yield May Ease to 6.75%-7% by March

Bond Supply Relief Could Help Cap India’s Long-Term Yields

Lower borrowing needs may offset some rate pressure, but a near-term rise in yields remains possible.

India’s bond market is balancing two opposing forces: the prospect of higher policy rates and a large supply of government securities on one side, and borrowing-management measures that could limit issuance pressure on the other. SBI Research estimates the 10-year government security yield could settle between 6.75% and 7% by the end of March 2027, compared with a current level of around 7.43%.

Why the yield forecast holds despite rate risk

The forecast does not assume that policy rates must fall. SBI Research says the 10-year yield could remain within its projected range even if the RBI lifts the repo rate by 0.50 percentage point to 6%. Its reasoning draws on the historical relationship between the repo rate and the 10-year government bond yield, as well as the spread between Indian and US 10-year yields.

Since 2019, the research says, an India-US 10-year yield spread of 2%-3% has been the most likely outcome. The spread is currently around 2.50%. That history offers a reference point, not a guarantee: changes in borrowing needs or global yields could still shift the relationship and alter the path of domestic yields.

Borrowing operations are a key domestic cushion

The report estimates government bond supply at ₹21.40 lakh crore against demand of ₹19.88 lakh crore, leaving an excess supply of about ₹1.52 lakh crore. When investors must absorb more securities than expected demand can accommodate, yields can face upward pressure as the market adjusts to clear that supply.

Bond switches and buybacks have already reduced the gross borrowing requirement by ₹1.23 lakh crore, SBI Research says, with scope for a further reduction. These measures could ease the amount of fresh borrowing the market has to absorb. They do not eliminate the supply-demand gap, however, leaving the scale and timing of any additional action important to the outlook.

Global yields could keep Indian bonds volatile

External conditions are another source of uncertainty. SBI Research expects the US 10-year Treasury yield to settle around 4.75%, while warning that a near-term spike to 5.25%-5.35% cannot be ruled out. The yield is currently around 4.93%. A sustained rise in US yields could make the spread relationship less supportive for Indian bonds, although the report’s historical comparison still points to a 2%-3% range as the most likely scenario.

The report also highlights the US government’s estimated $304 billion excess supply of securities relative to investor demand, alongside a higher fiscal deficit than in 2015. It links rising Treasury yields to larger unrealised losses on the Federal Reserve’s holdings: these increased by $26.3 billion between December 2025 and June 2026. These figures underline the wider supply pressures in global bond markets, but do not determine the direction of Indian yields on their own.

A near-term spike remains part of the outlook

SBI Research has not ruled out a short-term rise in India’s 10-year yield to 7.6%. The report says some market participants were caught off guard when yields crossed 7.15%-7.2% and are now cutting positions, contributing to the recent spike. Such adjustments can add volatility even when the medium-term view is more constructive.

For investors, the distinction between a near-term trading move and the report’s end-March 2027 projection matters. The forecast depends on borrowing management and historical relationships continuing to provide support; the supply gap and possible global yield spikes remain risks. A yield increase generally weighs on the market value of existing fixed-rate bonds, so investors should consider both price volatility and their investment horizon.

Key Highlights

• India’s 10-year yield is around 7.43%; SBI Research projects 6.75%-7% by the end of March 2027.
• The forecast holds even under a scenario in which the repo rate rises by 0.50 percentage point to 6%.
• Estimated excess supply in the Indian government bond market is about ₹1.52 lakh crore.
• Bond switches and buybacks have cut the gross borrowing requirement by ₹1.23 lakh crore.
• A short-term rise to 7.6% remains possible amid position adjustments and global yield uncertainty.

Investor Note: SBI Research’s projection offers a scenario, not a certainty. Bond investors should weigh the potential support from lower borrowing against the remaining supply gap, RBI rate risk and possible volatility in US Treasuries.