Mumbai (Maharashtra) [India], June 4 : India's benchmark 10-year government bond yield could decline further if the Reserve Bank of India (RBI) announces a policy rate cut of more than 25 basis points in its upcoming monetary policy on June 6, according to a report by Bank of Baroda.
The central bank's Monetary Policy Committee (MPC) is scheduled to announce its decision on Friday. While markets largely expect a 25 bps cut, the report stated that any reduction above this level could trigger a further downward movement in bond yields.
The report said "Any reduction in policy rate more than the expected 25bps might lead India's 10Y yield to trade further downward".
It added that India's 10-year bond yield is expected to trade between 6.15 per cent and 6.27 per cent in the month of June, with the risks tilted to the downside.
The report also highlighted trends in global and domestic bond markets. It noted that global yields saw some hardening in May 2025, mainly due to rising debt concerns in the United States. This contributed to risk-off sentiment among investors.
However, in contrast, Indian bond yields softened across all segments of the yield curve, with a more noticeable decline at the very short end. The short end of the curve is more sensitive to changes in system liquidity.
This downward shift in yields has made India's yield curve steeper, a trend the report expects to persist.
The report attributed the softening to the RBI's orderly management of liquidity, which kept the system liquidity in a comfortable surplus of approximately 0.7 per cent of Net Demand and Time Liabilities (NDTL) in May 2025.
The surplus liquidity was also reflected in the banking system, where the gap between incremental deposits and borrowings, after accounting for credit and investment, widened further.
Looking ahead, the report expects some liquidity pressure from the seasonal build-up of government cash balances.
However, it added that RBI's large dividend transfer to the government and its regular fine-tuning operations should provide support.
Ultimately, the RBI's upcoming policy decision will play a crucial role in setting the tone for bond market yields in the near term.
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