The 10-year G-Sec yield is likely to trade at 6.15-6.35% in the remainder of CY2025.
FPIs turned net buyers in the Indian markets, with inflows amounting to a marginal $0.4 billion in Q1 FY2026; ICRA remains circumspect around FPI flows in FY2026, amid heightened uncertainty owing to geopolitical tensions and reciprocal tariff negotiations with the US.
India’s yield curve steepens at the end of June 2025: The 10-year G-Sec yield eased in April and May 2025, declining to 6.22% as on May 30, 2025 (from 6.36% as on April 30, 2025), down from 6.58% as on March 31, 2025. Despite another rate cut by the RBI in its June 2025 policy, the 10-year G-Sec yield firmed up in June, closing at 6.32% as on June 30, 2025, as the Central Bank reverted its stance to 'neutral', dampening market expectations of further rate cuts. The 91-day T-Bill continued to soften during Q1 FY2026 and closed at 5.41% as on June 30, 2025 (5.63% as on May 31, 2025, 5.93% as on April 30, 2025, 6.37% as on March 31, 2025). Following the marginally lower-than-projected CPI inflation print for Q1 FY2026, ICRA expects the Q2 FY2026 print to materially undershoot the MPC’s current forecast of 3.4% amid a benign outlook for July 2025, setting the stage for a 25 bps rate cut in August 2025. Looking ahead, we expect the 10-year G-Sec yield to trade at 6.15-6.35% in the remainder of CY2025, presuming a rate cut in August 2025.
Bond issuances scaled new highs in Q1 FY2026: The bond issuances usually remain weak in Q1; however, Q1 FY2026 witnessed strong issuances of Rs. 3.6 trillion (Rs. 2.7 trillion in Q4 FY2025, Rs. 1.8 trillion in Q1 FY2025). The sharp fall in bond yields amid a slower pass-through of repo cuts to banks’ lending rates led to higher bond issuances and slow bank credit accretion in Q1 FY2026. Of the issuances in Q1 FY2026, the share of NBFCs, corporates and banks stood at 53%, 39% and 8%, respectively. Looking ahead, the bond issuances are likely to be driven by NBFCs given the still cautious approach of the banks towards funding to them along with the yields remaining attractive. ICRA expects the conditions to remain conducive for bond issuances and, hence, estimates bond issuances to remain healthy at Rs. 11.1-11.7 trillion in FY2026.
EXHIBIT: Quarterly FPI flows (equity and debt)
Source: NSDL, CDSL; ICRA Research
EXHIBIT: Movement in USD/INR exchange rate and the US dollar index (DXY)
