• India’s yield curve remained steep in Q3 FY2026: The 10-year G-Sec yields were range-bound during October and November 2025, despite expectation of a potential rate cut in the ongoing quarter and US Fed’s second rate cut. However, yields firmed up marginally in December 2025 driven by tight liquidity, rising US Treasury yields and global trade uncertainties. Nonetheless, the level of the 10-year G-sec yield remained broadly similar to March 2025 (6.58% as on March 31, 2025). The 91-day T-Bill softened in Q3 FY2026, declining to 5.26% as on December 31, 2025 from 5.47% as on September 30, 2025, and 5.41% as on June 30, 2025 (6.37% as on March 31, 2025). Although the banking system liquidity tightened in December 2025 owing to advance tax outflows and significant credit expansion, the RBI actively supported liquidity through OMO and FX swaps. ICRA expects the 10Y G-Sec yield to be guided by liquidity trends in the banking system as well as GoI’s fiscal math and borrowing numbers for FY2027, and any news around the Bloomberg bond index inclusion. We expect it to trade at 6.6-6.75% until the presentation of the FY2027 Union Budget.
• Bond issuances rose slightly in Q3 FY2026: Bond issuances rose to Rs. 2.9 trillion in Q3 FY2026 from Rs. 2.7 trillion in Q2 FY2026, though they remained below the earlier quarterly high of Rs. 3.6 trillion in Q1 FY2026. Bond yields remained elevated throughout Q3 FY2026, while banks offered competitive rates, thereby leading to a demand shift from bonds to banks. Nevertheless, healthy pick up in economic activity in Q3 FY2026 driven by GST rationalisation and festive demand led to some uptick in bond issuances as well. Of the total issuance in Q3 FY2026, the share of NBFCs, corporates and banks (including AIFIs) stood at 41%, 42% and 18%, respectively, over 46%, 31% and 23%, respectively, in Q3 FY2025. Looking ahead, bond issuances are likely to be driven by NBFCs as they continue to tap capital markets to meet credit growth, while banks are also likely to increase some bond borrowings if the deposit growth continues to lag credit growth.
• Net FPI outflows eased to $0.1 billion in Q3 FY2026: India saw net FPI outflows (equity, debt and hybrid) of $0.1 billion in Q3 FY2026, albeit lower than that in Q2 FY2026 (-$4.5 billion). FPIs sold $1.3 billion from the equity market in Q3 FY2026   (-$8.7 billion in Q2), as the macroeconomic outlook remained uncertain after the imposition of US tariffs and penalties, leading to a slide in the USD/INR pair. In addition, net inflows in the debt segment eased to $0.9 billion in Q3 FY2026 from $4.2 billion in Q2, even as G-Sec spreads narrowed, particularly vis-à-vis the 10Y US treasury, UK and German bonds, along with sustained global uncertainty.

Source: NSDL, CDSL, ICRA Research