Not just rate cuts, liquidity is key to bond relief

Despite a 125-basis-point rate cut by the Reserve Bank of India (RBI in 2025, government bond yields have refused to cool off, leaving a growing disconnect between the bond market and policy actions.

- Subhana Shaikh

Since the beginning of February, RBI’s Monetary Policy Committee has cut the policy repo rate by 125 bps. While yield on the benchmark 10-year government bond has fallen from a high of 6.72% in February to 6.24% in May, it reversed those gains to 6.50% levels since late August when the US slapped 50% tariffs on Indian goods.

On Friday, yield on the 10-year government bond—the most liquid paper—ended at 6.60%, 10 bps higher since the rate-setting panel announced its latest 25 bps cut in repo rate on 5 December.