Indian Bond Yields Seen Range-Bound Amid Global Monetary Policy Divergence

Indian government bond yields are likely to remain stable between 6.6% and 6.9%, limiting short-term trading opportunities, according to a recent report by Motilal Oswal Private Wealth.

The Reserve Bank of India's latest Monetary Policy Committee meeting saw no change in the benchmark repo rate at 5.25%, with a neutral stance maintained by the central bank. The RBI also upgraded its GDP growth forecast for fiscal year 2026-27 to 6.7% while trimming its CPI inflation projection by 10 basis points to 5.0%.

Ashish Shanker, Managing Director and CEO at Motilal Oswal Private Wealth, stated that the softer inflation outlook supports a pause in interest rate hikes until CY2026, but global risks may lead to a 25 bps hike as early as CY2027.

The report notes that the 10-year G-Sec yield has eased from earlier peaks and is now hovering around 6.77%, returning to levels seen prior to the US-Iran conflict. Global monetary policy divergence, driven by potential rate increases by the US Federal Reserve and tightening measures by the Bank of Japan, continues to keep policymakers vigilant against currency depreciation and capital outflows.

The report recommends an accrual-oriented strategy across the credit spectrum and income-generating assets like InvITs as the core fixed-income allocation. Accrual exposure should constitute 55-60% of fixed-income allocations, directed towards performing credit, private credit strategies, high-yield non-convertible debentures, and infrastructure investment trusts.