Bonds, Yields, and the RBI: Decoding India’s Debt Market – by Mr. Umesh Tulsyan
New Delhi [India], October 14: While the news headlines are often dominated by stock market highs and IPO buzz, there’s another part of financial system quietly shaping everything from interest rates to government spending — the bond market or the debt market.
The debt market plays a crucial role in the economy by allowing the government and institutions to borrow money from public and institutional investors. But what exactly is happening in the bond market, why is it in the news, and what role does the Reserve Bank of India (RBI) play in it?
Why Is the Indian Bond Market in Focus Now?
In the last one year, India’s bond market has gained significant attention for several reasons:
1. Interest Rate Movements
India’s economic outlook has improved considerably in last one year despite a very volatile global market led by wars, change in governments and cross-country skirmishes. This improvement and easing of inflation has allowed the RBI to cut repo rates by 100 bps in 2025.
The changes in the repo rate directly affect bond yields. When rates go up, bond prices fall (and yields rise), and vice versa.
However, we saw the 10-year G-Sec yield moving up from 6.30 to 6.65 post the MPC meeting held in June ’25 along with its stance reversal from accommodative to neutral. As a result, we have also witnessed a significant reduction in both domestic and foreign investor demand since this policy.
2. Foreign Investment
India’s inclusion in global bond indices like the JPMorgan GBI-EM Bond Index, Bloomberg EM Local Currency Government Index, etc. has attracted FPIs to invest in Indian bonds. This means that more global money is flowing into the Indian debt market.
While the JP Morgan GBI-EM Bond Index has recently reduced its share allocation of Indian Bonds from 10% to 9%, this may not have a large impact on FPI outflows.
In fact, Bloomberg’s exploratory discussion to add Indian Bonds to its Global Aggregate Index further reinforces the growing popularity of our markets.
Apr ’25–Jun ’25 saw FPIs shift their gears and a significant pull back of funds as the US dollar strengthened, but as we enter the second half of this fiscal, the widening of spreads between US and India sovereign bonds, clubbed with India’s rating upgrade by S&P, started attracting FPIs back to the Indian debt markets in Sep ’25.
3. Liquidity
Last year there were instances of liquidity deficit which were impacting the overall growth of the economy. To counter this, the RBI continuously started infusing liquidity since January ’25.
The RBI has infused over INR 9.5 tn liquidity in 2025 using various tools, majority of which came from open market operations (INR 5.2 tn) and had also announced a mega CRR cut by 100 bps in its June MPC to ensure sufficient durable liquidity in the banking system for driving growth when the dollar–rupee swap tenure ended.
Scheduled 100 bps CRR cut in 2025:
September 6 – 25 bps
October 4 – 25 bps
November 1 – 25 bps
November 29 – 25 bps
On the other hand, the RBI also wanted the call money rates to be closer to the repo rates. Incidentally, when the short-term money market rates started going much below the repo rates, it was not in line with the RBI’s neutral liquidity policy.
So, they decided to introduce short-term variable reverse repo rate (VRRR) auctions to eliminate excessive liquidity from the system. This ensured that the system is not flooded with excessive liquidity as during Covid times and not choked either.
4. Corporate Rush to Raise Funds
The markets have also witnessed a sharp fall in the borrowing costs for NBFCs in last few quarters from a high of 11%–14% to 9%–12%.
While institutions are getting more comfortable to raise resources through capital markets instead of banks, investors are chasing high yields to maximise their returns before the interest rates fall further.
The size of the corporate bond market has therefore increased significantly over the last decade.
5. Retail Participation
Over the last few years, regulatory bodies have taken significant steps to encourage investments from individual investors in government bonds through platforms like RBI Retail Direct.
The user registration on this platform has doubled every year in last 3 years while the traded volumes have crossed over 12,000 cr (Primary + Secondary).
| RBI Retail Direct Participation | Oct’23 | Oct’24 | Oct’25 |
|---|---|---|---|
| Number of Registrations | 1,15,361 | 2,50,006 | 5,35,389 |
| Number of Accounts Opened | 99,865 | 1,72,577 | 3,14,924 |
| Primary Subscriptions (cr) | 2,898 | 5,388 | 7,348 |
| Secondary Traded Volumes (cr) | 467 | 834 | 5,386 |
Apart from this, India has ~29 OBPPs (Online Bond Platforms Providers) which have estimated business volumes over 20,000 cr annually in totality.
This democratization of the bond market allows everyday citizens to earn steady returns with relatively low risk.
How Has the Market Changed Since the Change of Guard of RBI Governor?
At the fag end of the tenure of Dr. Shaktikanta Das, it was important to manage currency and inflation as the markets were very volatile and investor demand was muted.
After the change of guard, Shri Sanjay Malhotra put his focus on driving the growth agenda by pumping sizeable liquidity in the system and cutting rates simultaneously. The reduction in inflation in this calendar year also aided his decisions.
However, the June rate cut of 50 bps and reversal of stance to drive growth somehow backfired. The 10-year benchmark started moving upwards from 6.30 to a high of 6.65 in the last quarter.
The biggest fall was seen in long duration bonds where the yields moved drastically upwards (~7.39 for 40-year) with the market perceiving it as an end of a rate cut cycle.
Now, since the last MPC of Oct ’25, the markets have acted positively. The impact of GST collection, US tariffs and other macroeconomic factors have already been discounted and the markets may be poised for another couple of rate cuts by the end of this Financial Year.
The major concern for our country is a double-digit nominal growth which is being actively monitored both by RBI as well as the MoF.
How Does This Affect You?
For institutions, the debt market may see yields coming down by another 20–25 bps in this financial year, which the investors can take advantage of by investing now in GOI securities as well as state development loans (SDLs).
Institutions looking to raise funds from capital market may wait for some more time which can further reduce their cost of borrowings.
For individual investors, even if you’ve never bought a bond, the bond market affects your life in several ways:
Home loan and car loan interest rates are influenced by bond yields and RBI policy.
Your investment returns — whether through mutual funds, pension plans, or insurance — may include bond exposure.
In short, the bond market is deeply tied to everyday financial realities — and as it evolves, so does the broader economic landscape.
This article is written by Mr. Umesh Tulsyan, Managing Director of Sovereign Global Markets Pvt Ltd, a Delhi-based financial boutique, based on his independent research and thorough understanding of the Indian Debt Markets.
Umesh brings with him over 25 years of experience in the financial services industry. The views expressed here are completely personal and should not be construed as any investment advice.
Disclaimer: This press release is for informational purposes only and does not constitute financial advice. Investments involve risk, and past performance is not indicative of future results. Readers should conduct their own research or consult with a qualified advisor before making any decisions.
