What Cues Are Investors Looking For In Bond Market?

India’s bond market is standing at a crucial juncture. As foreign investors close their books nearing the holiday season and the end of the year, domestic traders look out for cues, such as rate cuts which could keep the gains intact in the bond market. On November 28, 2025, bonds gave up the week’s gains after the gross domestic product (GDP) growth data for the Jul-Sept 2025 quarter was reported higher than expected. Currently, the 10-year benchmark government bond is trading at 6.57 per cent. A higher growth number could influence the decision of the Reserve Bank of India’s (RBI’s) monetary policy committee (MPC) to not cut interest rates. Before the release of the GDP print, RBI Governor Sanjay Malhotra had last week indicated that there was still room for rate cuts. The MPC has so far cut the benchmark interest rate by 100 basis points (bps) in the current year, bringing down the repo rate to 5.50 per cent. MPC Decision and Commentary: While traders have lowered their hopes of a rate cut by the rate-setting panel this week, they will nevertheless watch out for any change in monetary policy stance which could indicate further stimulus measures by the panel in the next year. At present, the monetary policy stance is ‘neutral’, but some market participants are hoping that the panel will change the stance to ‘accommodative’, which could indicate room for further rate cuts. The commentary of the six-member MPC panel will also matter. Even if the panel keeps the interest rate at a status quo, the voting pattern and commentary of the members, especially of the external members would be keenly awaited by the bond market players. US-India Trade Deal: Most traders expect some form of consensus between India and the US on trade and tariffs. The US has imposed 50 per cent tariff on Indian imports, and economists expect the longer the tariffs remain in place, the more there will be headwinds on growth. Some market participants expect GDP in the second half of the financial year to reflect a slowdown due to impact from the US tariffs, but the official forecast of GDP for the full of FY26 was increased to 7 per cent from 6.50 per cent earlier. If an India-US trade deal is reached with a lower tariff imposition, impact on growth could be alleviated. A higher growth reduces the scope of rate cut and vice versa. Meanwhile, the impact of tariffs on the rupee is also something that bond traders will watch out for. The rupee fell to a fresh record low of 89.78 against the dollar. While the RBI’s intervention in the foreign exchange market through dollar sales has limited the volatility in the rupee, a further downward bias of the domestic currency could deter foreign investors from buying Indian bonds. RBI Bond Purchases: Many traders are expecting the RBI to buy government bonds through open market operations either through the secondary market or through primary auctions. This could also be to counter the rupee liquidity in the market due to the central bank’s dollar sales. When the central bank buys bonds from the market, outstanding liquidity of bonds available with the market reduces, thereby generating demand for bonds. Conversely, the infusion of rupee liquidity in the market due to the bond purchases also increases demand and investor appetite. Some market participants expect the RBI to buy Rs 2-3 lakh crore of gilts during the Jan-Mar 2026 quarter. Long-Term Investor Demand: Demand from long-term investors and pension fund houses and insurance companies is also something that traders will watch out for. Usually, during the Jan-Mar quarter, long-term investors buy bonds to meet their year-ending regulatory requirements and also driven by flows into insurance and pension fund schemes. However, over the past two quarters, demand from such long-term investors have been muted. Index Inclusion: Traders will also await for any possible inclusion of India’s bonds in a global index. Traders are hoping that India’s bonds will be included in the Bloomberg Global Aggregate Index after reports of positive feedback from foreign portfolio investors (FPIs), a decision which is expected to be announced by January 2026. In September 2025, Bloomberg Index Services sought investor feedback on whether Indian government securities (G-secs) should be included in its flagship index. Depending on the weightage, if Indian bonds are included in the flagship Bloomberg index, it is expected to bring in higher foreign inflows than before.