Indian bond yields may ease to 6.2% if RBI cuts rates in December, LGT Wealth's Chirag Doshi explains why
October 12, 2025
LGT Wealth India's CIO of Fixed Income assets, Chirag Doshi, sheds light on how the Indian bond market yields can potentially ease to 6.2% if RBI cuts its benchmark interest rates in its December policy meeting. Here's what Doshi said…
As 2025 heads into its final quarter, India’s fixed-income market finds itself in a rare position of strength — anchored by policy stability at home and shifting rate dynamics abroad. While the world’s major central banks tiptoe toward easing, India’s bond investors are discovering that patience and prudence are finally being rewarded.
RBI Holds Steady, But the Bias is Soft
The Reserve Bank of India (RBI), in its October policy meeting, chose to hold the repo rate steady at 5.50%, extending its pause after a cumulative 100 basis points of cuts earlier this year. The stance remains “neutral with a softening bias”, signalling the central bank’s intent to wait and watch as earlier policy actions filter through.
Inflation, which had briefly firmed up in July, has since eased to below 3%, comfortably within the RBI’s tolerance band, while GDP growth estimates have been revised upward to 6.8% for FY26, buoyed by resilient consumption and investment momentum.
Governor’s message in the latest policy is clear — India’s rate cycle is near its inflexion point, and while further easing isn’t ruled out, it will be data-dependent. With food inflation stabilising and crude oil prices remaining range-bound, a modest rate cut by December 2025 remains the market’s base case.
Markets React: A Mild Steepening, Not a Sell-Off
Government bond yields have stabilised after an earlier bout of bear steepening in August, when concerns over GST rationalisation and fiscal headroom pushed the 10-year G-Sec yield up to around 6.57%. Since then, a combination of steady auction demand, healthy banking system liquidity, and balanced borrowing patterns has supported the market.
The government’s second-half borrowing plan — at ₹6.55 trillion, lower than last year’s comparable figure — eased supply anxieties. With the term premium between the 10-year and the 1-year G-Sec widening to nearly 90 basis points, mid-curve bonds now offer an appealing blend of yield and duration safety.
Corporate bond spreads, meanwhile, remain stable across AAA-rated issuers. Market appetite for high-quality private paper is returning as volatility in global rates subsides.
Global Winds: Fed Pivot Strengthens India’s Hand
The U.S. Federal Reserve’s first rate cut of this cycle — a long-awaited 25 bps move in September — has changed the tone of global bond markets. With U.S. GDP growth cooling and inflation edging toward 2%, the Fed appears ready to pivot toward an easing bias through 2026.
This shift enhances India’s relative yield appeal. The India–U.S. 10-year spread, which had compressed earlier in the year, has widened back to around 230 basis points, drawing renewed foreign interest. The ongoing index inclusion in JPMorgan’s and Bloomberg’s EM bond benchmarks ensures that foreign inflows into Indian debt remain structurally strong, even if cyclical volatility persists.
What Lies Ahead
The coming months will likely see Indian yields trade in a 6.35–6.55% corridor, with potential drift toward 6.20% if a December rate cut materialises. For investors, this is less a time for chasing capital gains and more an opportunity to harvest carry with controlled duration exposure.
Medium- to long-duration strategies continue to offer compelling total-return potential, especially given India’s strong fiscal discipline, declining inflation trajectory, and stable rupee dynamics.
Bottom Line
India’s fixed-income market is entering a phase of steady opportunity — one defined not by exuberance, but by equilibrium. With policy predictability at home, easing signals abroad, and index-linked inflows on the horizon, the case for Indian bonds is as strong as it’s been in years. For investors, this is the moment to stay positioned — calm, confident, and comfortably long.
The author, Chirag Doshi, is the CIO at LGT Wealth India.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.
RBI Holds Steady, But the Bias is Soft
The Reserve Bank of India (RBI), in its October policy meeting, chose to hold the repo rate steady at 5.50%, extending its pause after a cumulative 100 basis points of cuts earlier this year. The stance remains “neutral with a softening bias”, signalling the central bank’s intent to wait and watch as earlier policy actions filter through.
Inflation, which had briefly firmed up in July, has since eased to below 3%, comfortably within the RBI’s tolerance band, while GDP growth estimates have been revised upward to 6.8% for FY26, buoyed by resilient consumption and investment momentum.
Governor’s message in the latest policy is clear — India’s rate cycle is near its inflexion point, and while further easing isn’t ruled out, it will be data-dependent. With food inflation stabilising and crude oil prices remaining range-bound, a modest rate cut by December 2025 remains the market’s base case.
Markets React: A Mild Steepening, Not a Sell-Off
Government bond yields have stabilised after an earlier bout of bear steepening in August, when concerns over GST rationalisation and fiscal headroom pushed the 10-year G-Sec yield up to around 6.57%. Since then, a combination of steady auction demand, healthy banking system liquidity, and balanced borrowing patterns has supported the market.
The government’s second-half borrowing plan — at ₹6.55 trillion, lower than last year’s comparable figure — eased supply anxieties. With the term premium between the 10-year and the 1-year G-Sec widening to nearly 90 basis points, mid-curve bonds now offer an appealing blend of yield and duration safety.
Corporate bond spreads, meanwhile, remain stable across AAA-rated issuers. Market appetite for high-quality private paper is returning as volatility in global rates subsides.
Global Winds: Fed Pivot Strengthens India’s Hand
The U.S. Federal Reserve’s first rate cut of this cycle — a long-awaited 25 bps move in September — has changed the tone of global bond markets. With U.S. GDP growth cooling and inflation edging toward 2%, the Fed appears ready to pivot toward an easing bias through 2026.
This shift enhances India’s relative yield appeal. The India–U.S. 10-year spread, which had compressed earlier in the year, has widened back to around 230 basis points, drawing renewed foreign interest. The ongoing index inclusion in JPMorgan’s and Bloomberg’s EM bond benchmarks ensures that foreign inflows into Indian debt remain structurally strong, even if cyclical volatility persists.
What Lies Ahead
The coming months will likely see Indian yields trade in a 6.35–6.55% corridor, with potential drift toward 6.20% if a December rate cut materialises. For investors, this is less a time for chasing capital gains and more an opportunity to harvest carry with controlled duration exposure.
Medium- to long-duration strategies continue to offer compelling total-return potential, especially given India’s strong fiscal discipline, declining inflation trajectory, and stable rupee dynamics.
Bottom Line
India’s fixed-income market is entering a phase of steady opportunity — one defined not by exuberance, but by equilibrium. With policy predictability at home, easing signals abroad, and index-linked inflows on the horizon, the case for Indian bonds is as strong as it’s been in years. For investors, this is the moment to stay positioned — calm, confident, and comfortably long.
The author, Chirag Doshi, is the CIO at LGT Wealth India.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.