The highest net supply pressure will be witnessed in May and June 2026, with a net borrowing of INR 1430 bn and INR 1600 bn respectively.
FinTech BizNews Service
Mumbai, April 1, 2026: The latest edition of YES BANK’s ‘Ecologue’, provides a useful analysis on G-sec borrowing. The research report, has been authored by Indranil Pan, Chief Economist; and Khushi Vakharia as well as Shreya Anurakti, YES BANK:
G-sec issuances of INR 8.2 trn for H1FY27 is at 51% of the gross borrowing target of INR 16.1 trn for FY27. With redemptions in H1FY27 amounting to INR 2.5 tn, the net G-sec borrowings slated to be completed is INR 5.7 tn (lower than the net G-sec issuance size of INR 5.9 tn of H1FY26). At this point, the situation remains quite volatile and uncertain, and the fiscal costs will depend on the longevity of the West Asia crisis. Overall, we anticipate that the fiscal costs could range from 0.2-0.5% of GDP. It is difficult to take a view immediately on the funding instruments to bridge the additional fiscal burden, if any. Given the fiscal issues, continuing pressure from global yields and a likely continuing INR depreciation pressure, India 10-year yield is expected to be in a range of 6.75-7.25% in H1FY27. This view can dramatically change if the war in West Asia sees a de-escalation.
H1 FY27 borrowing to cover 51% of budgeted borrowings: The G-sec auctions will be spread over 26-weeks from April 2026 to September 2026, with size ranging between INR 280-340 bn on weekly basis in comparison to INR 250-360 bn in H1FY26. From supply perspective, April 2026 will be the best month with the net borrowings turning negative at INR 135 bn due to redemptions of INR 1525 bn. The highest net supply pressure will be witnessed in May and June 2026, with a net borrowing of INR 1430 bn and INR 1600 bn respectively. In terms of green bonds, 30 yr SGrB issuance is targeted at INR 150 bn. SGrBs will contribute 1.8% of the total gross borrowings in H1FY7. The belly of the curve (10–15year segment) will see the highest share of supply at 43.5%. Long duration papers (30Y to 50Y) will account for ~23% of the gross borrowings (34% in H1FY26). The supply in the shorter tenor of 3Y and 5Y are respectively at 8% and 15.4% respectively in H1FY27.
T-bill issuances for Q1 at INR 2.88 tn: The T-bill calendar for Q1FY27 showed a gross issuance of INR 2.88 tn. The calendar is higher by 16.6% when compared to Q1FY26 when the gross issuance was at INR 2.47 tn. The Q1FY27 calendar is more concentrated in the 91-day segment with issuances worth INR 1.44 tn (50%). Both 182-day segment and 364-day segment have equal concentration at 25%.
A difficult story unfurling for India bonds in FY27: India 10-year G-sec yields has now steadily increased to 6.93%. Post Budget we had anticipated yields to rise, given the high gross borrowing programme (that was later trimmed down by the announcement of switching of Gsecs from maturity in FY27 to a later date). Post Budget we had anticipated the 10-year India benchmark yield to be in a range of 6.65%-6.80%, giving the strain on banking sector deposits, lower AUM accretion for insurance companies, lower FPI interest in India due to the depreciation pressures on INR. RBI came in with a large OMO purchase requirement to neutralize the liquidity implications of FX sales, that lent some support to the bond yields. Overall, with an end to the rate cutting cycle of RBI, the India G-sec yield curve steepened and was expected to stay so, due to higher supplies.
The West Asia crisis has significantly changed the dynamics of the India bond markets. First, the price of oil has increased significantly due to the crisis and India oil basket is also much higher than the Brent crude prices at this point. The two biggest determinants of the India bond market have been the sharp increase in the international bond yields, that leads to reduced probability of India getting adequate flows into its own debt market from foreign sources. Thus, there is a reasonable correlation between UST 10-year yields and India 10-year G-sec yields. The sharp INR depreciation pressure along with the increased risk perception for India (risks of a weaker CAD/GDP due to higher oil import bill) is likely to keep FPI investments in the India sovereign bond segment muted. The other close correlation emerges between the oil prices and the India bond yields. This is due to the likely impact of oil prices and other commodity prices on inflation, and the fiscal impact of the higher oil prices. In a recent move, the government shows its readiness to absorb the oil price hit to the economy within the fiscal. The excise duty on petrol and diesel has been cut by Rs 10 / litre and to partially counter this fiscal hit, the export duty on ATF and diesel has been raised. As per government estimates, the loss to the exchequer on account of excise cuts is INR 70 bn per fortnight and the gains to the exchequer due to the export duty hike is INR 15 bn, implying a net loss of INR 55 bn in a fortnight. Considering a full year basis, the estimated loss is INR 1320 bn. There are other costs of the oil price increase in the form of higher fertilizer subsidies, higher LPG subsidies etc. On the other hand, some cushion is likely from the INR 1 trn of Economic Stabilization Fund (announced as a part of 2nd Supplementary Demand for Grants for FY26 and continues into FY27), that can be used to neutralize the higher fiscal costs.
At this point, the situation remains quite volatile and uncertain, and the fiscal costs will depend on the longevity of the West Asia crisis. Overall, we anticipate that the fiscal costs could range from 0.2-0.5% of GDP. It is difficult to take a view immediately on the funding instruments to bridge the additional fiscal burden. On the other hand, due to the inflationary impact of the crisis on India, further rate cuts by the RBI are ruled out and the OIS is pricing in at least one rate hike by the RBI. Given the above fiscal issues, continuing pressure from global yields and a likely continuing depreciation pressure for the INR, India 10-year yield could be in the range of 6.75-7.25% in H1FY27. This view can dramatically change if the war in West Asia sees a deescalation.
