Topic 2: DEBT MARKETS: WALKING CAUTIOUSLY

In November 2025, India’s debt market remained broadly stable, supported by the Reserve Bank of India’s accommodative stance, comfortable domestic liquidity, and easing inflationary pressures. Although foreign portfolio investor (FPI) activity created intermittent volatility, strong local demand and supportive central bank measures helped moderate sharp yield movements, allowing bond prices to post modest gains by the end of the month.

The benchmark 10-year government security (6.33% 2035) yield softened slightly over the period. It declined from around 6.57% at the beginning of November to close near 6.50–6.54% by November 28. This gradual fall in yields reflected mild price appreciation in government bonds. Liquidity conditions improved during the month, with surplus liquidity rising to approximately ₹1.2 trillion, which further supported bond prices and reduced funding costs for banks and financial institutions.

The yield curve steepened in November as short-term yields declined more rapidly than long-term yields. This steepening was driven by the RBI’s surprise repo rate cut to 6% and a reaffirmation of its accommodative policy stance. Short-end bond yields were quick to respond to expectations of easier monetary conditions, while longer-dated bonds remained stable due to persistent global uncertainty and elevated international yields. The 5-year government bond yield traded in the range of approximately 6.11% to 6.20% during the latter part of the month, while mid-month indicative yields stood around 6.01% for 4–5 year maturities and 6.53% for 9–10-year maturities.

Money market rates also reflected improving liquidity, though they ticked up slightly toward the end of the month. The interbank rate hovered near 5.50%, remaining mostly rangebound. Expectations of aggressive future rate cuts faded somewhat as strong GDP growth forecasts tempered the likelihood of rapid policy easing. India’s Q2 GDP was projected in the range of 6.5%–6.8%, highlighting the economy’s resilience and limiting sharp declines in longer-term bond yields.

On the corporate bond front, yields showed some firmness despite the RBI’s rate cut. Supply pressures from increased corporate issuance and cautious sentiment kept borrowing costs elevated in this segment. As a result, corporate bond yields did not soften as much as government securities, although overall market conditions remained orderly.

Foreign portfolio investor activity was mixed throughout the month. Elevated U.S. bond yields—hovering near 4.2%—along with global financial volatility renewed some pressure on emerging market debt, including India’s. The Indian rupee also weakened to record lows of around ₹89.55 per U.S. dollar, triggering a partial pullback by some overseas investors. These factors contributed to modest FPI outflows at various points during November. However, FPIs still recorded net inflows of approximately ₹5,760 crore into Indian debt through Fully Accessible Route (FAR) eligible bonds. Simultaneously, under the general debt limits, FPIs invested about ₹8,114 crore. These inflows were partially offset by outflows of around ₹5,053 crore from the Voluntary Retention Route (VRR), leading to overall muted, though net positive, participation. Compared to earlier expectations of $20–25 billion in annual inflows following FAR expansion, total year-to-date debt inflows stood lower at around ₹69,073 crore (around $7.8 billion).

Several factors continued to attract foreign interest in Indian bonds. Yield differentials between India and other major emerging markets—especially China—remained attractive. In addition, expectations of further RBI support through open market operations (OMOs) and the possibility of India’s inclusion in the Bloomberg Global Aggregate Bond Index encouraged selective inflows despite the weak currency and global uncertainties.

Overall, India’s bond market in November 2025 demonstrated relative resilience. While equity markets experienced volatility and foreign investors turned cautious in riskier segments, the debt market benefited from stable inflation (CPI at 3.16%), improving domestic liquidity, and ongoing RBI support. These factors together contributed to a mild decline in bond yields and supported overall market stability, preventing sharp downside movements and reinforcing confidence in India’s fixed income outlook.