Rising bond yields is a deterrent for many states to raise funds, says FM Sitharaman

Finance Minister Nirmala Sitharaman

• Finance Minister Sitharaman: Rising bond yields deter states from raising funds
• Government bond yields surged after higher borrowing announced in Union Budget
• Benchmark 10-year bond yield rose to 6.77 percent, highest in over a year

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Rising bond yields is a deterrent for many states to raise funds, as they can’t afford it, Finance Minister Nirmala Sitharaman said in an interview with Network-18 Group Editor-in-Chief Rahul Joshi on Monday.

"Without shifting the blame, the responsibility (of low yields) is dependent on so many different factors," said the FM.

"Crowding in is one of the things on which the market gets heated up…given the levels of developmental activities, which all of us want to ramp up, both central government and state governments (need to raise funds)," said the FM.

Going to the market is one way of raising your fund. But if the yields are high, many states go back without raising the fund, which is “a concern". "So, it's an evolving situation, we have to see how it goes."

Government bond yields surged on Monday after the Union Budget announced higher-than-expected gross borrowing of Rs 17.2 trillion for the financial year 2026–27.

The higher-than-expected borrowing could mean weekly gross supply at Rs 37,000 crore, up from Rs 31,000 crore, assuming 47 auctions during the year, Nomura said in a report.

The yield on the benchmark 10-year government bond rose by seven basis points to settle at 6.77 per cent, the highest in over one year.

“The high supply is coming at a time when the bond market is already suffering from oversupply,” the report said, while noting the risk of the 10-year bond yield heading towards 7 per cent.

On borrowing by states, Nomura said: “We have pencilled in Rs 12.75 trillion of gross supply from the states in FY27. However, we believe risks are towards a higher number, given the Centre’s slower-than-expected consolidation; states are also likely to be more relaxed.”