Indian government bond yields surged sharply on Monday, February 2, after the Union Budget revealed a significantly higher gross borrowing programme than markets had anticipated. The yield on the benchmark 10-year government bond jumped by about 8 basis points, opening at 6.740% and rising to 6.778%, compared with Friday’s close of 6.696%, reflecting immediate investor concerns over supply pressures in the debt market.
The 10-year yield climbed further to around 6.78%, its highest level since January 17, 2025, underscoring the market’s uneasy reaction to the borrowing outlook for the next financial year. The Union Budget pegged gross market borrowings for FY27 at ₹17.2 lakh crore, a 16% increase over the budget estimate for the current year. Net market borrowing is estimated at ₹11.7 lakh crore to fund a fiscal deficit targeted at 4.3% of GDP.
Market participants and analysts now see further upside risk to yields. Nomura Holdings Inc. and ICICI Securities Primary Dealership Ltd. have warned that the benchmark yield could rise to around 7% in the coming weeks, according to a Bloomberg report. Elara Capital echoed this view, stating that it expects the 10-year yield to gradually trend toward the 6.9–7% range, which could adversely affect funding costs for non-banking financial companies and mid-sized banks that rely heavily on wholesale funding.
In this environment, Elara Capital said it prefers well-capitalised large private sector banks with stable current and savings account ratios, noting that the Reserve Bank of India’s reaction function on liquidity and yields will become increasingly critical. Rising borrowing costs risk adding pressure to an economy already grappling with the impact of higher US tariffs, while the central bank’s scope to cut interest rates further to support growth appears limited.
Yields have continued to rise despite RBI intervention aimed at containing volatility in the bond market. Analysts attribute this to heavy issuance by state governments and weakening demand from traditional long-term investors such as pension and insurance funds. Alok Sharma, treasury head at the Industrial and Commercial Bank of China in Mumbai, said the central bank may need to step up bond purchases to improve liquidity and provide clearer signals on yield direction, warning that without proactive management, yields could continue their upward march.
Higher bond yields are also raising concerns for equity markets. According to Prashanth Tapse, senior vice president of research at Mehta Equities, rising yields tend to pressure stocks by increasing the discount rate used to value future cash flows, which disproportionately impacts high-growth, long-duration companies. He added that higher yields also raise corporate borrowing costs, squeezing profit margins, potentially slowing capital expenditure and earnings growth, and making fixed-income investments more attractive relative to equities, leading to valuation de-rating.
Despite these concerns, Indian equity benchmarks traded in a narrow range on Monday. The Nifty 50 edged up 0.04% to 24,833.65, while the BSE Sensex gained 0.17% to 80,863.21 as of 10:27 IST. Both indices swung between modest losses and gains during the session, reflecting caution among investors amid shifting interest rate expectations.
Technical analysts identified immediate support for the Nifty in the 24,700–24,600 zone, corresponding to intraday lows and levels seen on Budget day. On the upside, resistance is seen at 24,900–25,000, a key psychological band and a prior support level now acting as resistance, followed by a higher resistance zone around 25,150–25,300, an earlier area of consolidation.
