New Delhi, April 2026 (BNP): Tata Mutual Fund has reported a broad-based increase in bond yields across maturities in March 2026, driven by a combination of global geopolitical risks, higher government bond supply, and tightening domestic liquidity conditions, according to its latest Fixed Income Observer – April 2026 report.
The report highlights that long-term yields moved upward across the curve, with the 10-year benchmark government security (G-sec) yield rising by 36 basis points to 7.04%. This increase was largely attributed to elevated issuance by state governments, absence of sustained RBI open market operations, and external pressures such as geopolitical tensions linked to the US–Iran conflict.
A key trigger was the disruption in global energy markets following the closure of the Strait of Hormuz, which pushed crude oil prices above $100 per barrel. This, in turn, weakened the rupee and led to foreign portfolio outflows, amplifying inflation expectations and fiscal concerns in the domestic market.
Interestingly, the report notes a divergence between government and corporate bond yields. While G-sec yields rose due to supply pressures—especially in the 3–5 year segment—strong demand from provident funds and insurance companies kept AAA corporate bond yields relatively lower compared to equivalent maturity government securities.
On the liquidity front, the banking system witnessed a moderation in surplus liquidity during March, impacted by advance tax outflows, GST payments, and sustained credit growth. This tightening pushed short-term rates higher, particularly in the money markets.
Certificates of Deposit (CD) yields surged sharply at the shorter end, with one-month CD rates rising by 235 basis points month-on-month. The yield curve also showed signs of inversion in the short-term segment, reflecting market expectations of potential rate easing later in the fiscal year.
Despite the Reserve Bank of India conducting open market operations worth Rs 1 lakh crore in March to infuse liquidity, short-end yields remained elevated, indicating continued funding stress. Money market spreads widened across maturities, primarily due to a sharper rise in CD yields compared to treasury bills.
Summarising the trend, Tata Mutual Fund stated that “issuance pressure, global risks, and domestic liquidity tightening combined to drive yields upward across the curve,” signalling a cautious outlook for fixed income markets in the near term.
The report expects the short end of the yield curve to remain range-bound going forward, supported by relatively lower supply and improving liquidity conditions in the banking system.
