Benchmark 10-Year G-Sec Yield Climbs Above 7% as FY26 Concludes
The financial markets experienced significant turbulence on Monday, with the benchmark yield on 10-year government securities (G-Secs) rising sharply to close fiscal year 2025-26 (FY26) above the 7 percent threshold. This level had not been observed since July 2024, highlighting a notable shift in bond market dynamics.
March Sees Largest Yield Surge Since 2017
Throughout March, benchmark yields increased by 37 basis points, where 100 basis points equate to 1 percentage point. This represents the most substantial monthly jump since February 2017, as reported by Reuters. The surge occurred despite the government's announcement on Friday evening of its half-yearly borrowing plan, which totals Rs 8.2 lakh crore.
Bond dealers indicated that this borrowing plan aligned with market expectations. They noted that the selection of papers in the borrowing calendar was made judiciously to prevent yields from hardening excessively during FY27.
FY26: A Year of Historic Financial Milestones
Monday marked the final trading session of FY26, a period that witnessed several unique achievements and record-setting events in the money market. Notably, the Reserve Bank of India (RBI) infused an unprecedented Rs 10 lakh crore in liquidity into the financial system. This was accomplished through a combination of open market operations and foreign exchange swaps, setting a new benchmark for central bank intervention.
Additionally, the RBI drastically reduced the cash reserve ratio to 3 percent, reaching a historic low. This move was part of a broader strategy to enhance liquidity and support economic growth.
Monetary Policy Adjustments and Stance Shifts
During FY26, the monetary policy committee implemented a significant reduction in the policy repo rate by 100 basis points, bringing it down to 5.25 percent. This cut was aimed at stimulating economic growth by maintaining low interest rates.
In a remarkable development, the RBI altered its monetary policy stance twice within a short span. Between April and June, the stance shifted from 'neutral' to 'accommodative' and back to 'neutral' again, all within just two policy meetings. This rapid adjustment marked the first such occurrence in the central bank's history, reflecting the dynamic economic conditions of the year.
The convergence of these factors—rising yields, substantial liquidity measures, and agile policy changes—underscores the evolving landscape of India's financial markets as FY26 came to a close.
