Higher gross market borrowing may lead to increase G-sec yield

bonds

Higher gross market borrowing numbers announced by the government in the Union Budget 2025 is expected to increase the yield on the government securities in the coming days, experts said.

“The Gross borrowing is higher by Rs 75000 Crores compared with market expectations. This should lead to a knee jerk reaction in yields with 10-year yields moving towards 6.75 levels from 6.70 levels,” said Murthy Nagarajan, Head-Fixed Income, Tata Asset Management.

Additionally, Pankaj Pathak, Fund Manager- Fixed Income, Quantum AMC said the government has set a higher target of Rs. 2.5 lakh crore to switch near maturity bonds into longer maturity bonds – effectively increasing the supply of long-term bonds in the year. “The bond market would be somewhat disappointed as a result, and yields might go up next week.”

In union Budget 2025, gross market borrowing numbers announced by the government was around 6 percent higher for next financial year, as compared to current fiscal year.

The government has announced Rs 14.82 lakh crore gross market borrowing for FY26, as compared to Rs 14.01 lakh crore for FY25.

However, net market borrowing to finance the fiscal deficit is lower at Rs 11.54 lakh crore for FY26, from Rs 11.63 lakh crore in FY25.

In the first half of current financial year, the Centre has borrowed nearly Rs 7 lakh crore and plans to borrow Rs 6.61 lakh crore in the second half.

In the last few months, yield on the government securities, especially 10-year benchmark bond, remained in the range of 6.60-6.80 percent. This was due to better inflation trajectory and stable demand from foreign investors.

On January 31, yield on the 10-year benchmark bond closed at 6.700 percent, as compared to 6.681 percent close on the previous trading session.

Pathak further said that however, since overall demand-supply dynamics are still favorable, we anticipate that the negative effect on the bond market will be minimal and transient. “We continue to see strong demand for government bonds from domestic investors like banks, insurance companies and pension funds.”