06.02.202607:27:12UTC+00India 10Y Yield Rises Despite Rate Hold

The yield on India's 10-year government security (G-Sec) has climbed to approximately 6.7%, rebounding from its two-week low. This increase has been propelled by tight domestic liquidity conditions and global interest rate trends, prompting investors to seek higher returns. In February 2026, the Reserve Bank of India (RBI) maintained its repo rate at 5.25%, following a 25-basis-point reduction in December. Although this decision would typically bolster bond prices, its effect has been muted due to domestic liquidity challenges and pre-policy market positioning. Indian banks are experiencing a shortage of deposits, making them hesitant to purchase government bonds; this is compounded by the RBI's foreign exchange interventions and liquidity injections, which have reduced the availability of rupee funds. Banks are petitioning for relief on liquidity coverage ratio (LCR) norms, greater flexibility in held-to-maturity (HTM) rules, and adjustments to the cash reserve ratio (CRR). Limited participation in the market has kept yields high. Further influencing the situation are U.S. Treasury yields, particularly with the 10-year and 2-year spread approaching a four-year peak, driven by anticipation of Federal Reserve rate cuts and ongoing concerns about inflation and the fiscal deficit.