India's 10-Year Bond Yield Expected to Drop to 6.75-7% by March 2027

Indian government bond yields are projected to ease to a range between 6.75 and 7 percent by March 2027, even if the Reserve Bank of India (RBI) raises the benchmark interest rate by 0.50 percentage points, according to a recent analysis by SBI Research. This outlook is supported by expectations of reduced borrowing needs and historical yield patterns.

Currently, the yield on the 10-year government security (G-sec) sits at approximately 7.43 percent. Meanwhile, the yield spread between Indian 10-year bonds and comparable US Treasury bonds remains near 2.50 percent. SBI Research examined data going back to 2019 and found that a spread between 2 and 3 percent is typical under prevailing market conditions.

The report indicates that even with a repo rate increase up to 6 percent, the 10-year government bond yield in India would likely stay within the 6.75 to 7 percent band. This is based on a historical analysis of the relationship between the 10-year G-sec yield and the RBI’s repo rate.

Despite this moderate outlook, SBI Research warns that a short-term rise in yields to around 7.6 percent cannot be ruled out. This could occur as some investors react to recent yield movements above the 7.15 to 7.2 percent level by reducing their bond holdings, which may temporarily push yields higher.

The research also highlights a supply-demand imbalance in the Indian government bond market. It estimates an excess supply of roughly ₹1.52 lakh crore, with total government bond issuance expected at ₹21.40 lakh crore against an estimated demand of ₹19.88 lakh crore. The Indian government has already implemented strategies such as bond switches and buybacks, which have effectively reduced gross borrowing requirements by ₹1.23 lakh crore. Additional reductions could be possible going forward.

On the international front, SBI Research forecasts the US 10-year Treasury yield to settle around 4.75 percent over the same period, although a temporary spike to between 5.25 and 5.35 percent may occur. Presently, the US 10-year Treasury yield hovers near 4.93 percent.

The US bond market faces challenges from high government borrowing needs and a mismatch between Treasury supply and investor appetite. The report estimates that to maintain the 10-year yield at 4.75 percent, the US government would need to cut borrowing or spending by approximately $100 to $120 billion. A further reduction of about $200 billion would be necessary to lower yields towards 4.5 percent.

SBI Research also draws attention to the Federal Reserve’s balance sheet, noting that unrealized losses on Treasury holdings increased by $26.3 billion between December 2025 and June 2026. During this period, the Fed’s unrealized losses rose from $535.3 billion to $561.5 billion, influenced by the rise in the US 10-year Treasury yield from 4.18 percent to 4.44 percent. Higher yields reduce the market value of Treasury securities, thereby increasing the Fed’s unrealized losses.

Furthermore, the report highlights a widening gap between the supply of US government securities and investor demand. The excess supply stands at an estimated $304 billion, a marked increase from about $140 billion in 2015 when the US fiscal deficit was 2.5 percent of GDP. Currently, the deficit is estimated at 6.15 percent of GDP, reflecting larger borrowing needs.

This analysis of both Indian and US government bond markets provides insight into the dynamics shaping yields and borrowing costs. The developments have implications for investors, policymakers, and financial markets, as governments balance fiscal needs with market stability and economic growth objectives.