Borrowing costs in bond market may rise as upside risks to India's 10-year bond yield persist: BoB Report
Borrowing costs in India's bond market are expected to rise as uncertainties surrounding the country's 10-year government bond yield continue to loom. A recent report from Bank of Baroda highlights that these yields remain under pressure due to various macroeconomic factors, including inflation, global liquidity conditions, and geopolitical tensions. Non-Banking Financial Companies (NBFCs) are particularly affected, facing the steepest borrowing premiums compared to corporate borrowers, who are also experiencing increased spreads over public sector counterparts. The report emphasizes that the Reserve Bank of India's cautious approach to interest rates may not alleviate the upward pressure on bond yields. As a result, the risk premium for different entities is likely to increase, impacting bond spreads across various categories of issuers. Between March and June 2026, these spreads have widened, indicating that investors are demanding higher returns over risk-free government securities. Public Sector Financial Institutions and Banks (PFBs) maintain the lowest spreads, reflecting their government-backed status. In contrast, NBFCs, which account for a significant portion of bond issuances, are perceived as riskier, leading to their higher borrowing costs. As the economic landscape remains unpredictable, the report warns that borrowing costs could continue to escalate if the 10-year bond yield rises further.
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