Indian government bonds are navigating a period of recalibration following the Union Budget 2026 and recent shifts in the central bank’s management strategy. The market is currently balancing a record-high borrowing plan against a favorable inflation cooling and strategic debt operations. **Debt Management and Yield Trends** The Reserve Bank of India (RBI) is actively managing redemption pressures through debt switch operations. This maneuver involves exchanging short-term maturing securities for longer-dated bonds to smooth out the repayment profile and lower immediate gross borrowing needs. The benchmark 10-year government bond yield has recently hovered around **6.71% to 6.73%**. While yields touched a one-year high of **6.78%** in early February due to supply concerns, they have since stabilized. Market sentiment remains cautious as traders assess the government's ability to absorb the upcoming supply. **Budgetary Impact and Borrowing Targets** The Union Budget for the 2026-27 fiscal year set a record gross market borrowing target of **₹17.2 trillion**. This figure exceeded initial market expectations of **₹16.5 trillion**, creating temporary upward pressure on yields. Net market borrowing is estimated at **₹11.7 trillion**. Despite the high volume, the government is maintaining fiscal discipline, with the fiscal deficit target narrowed to **4.3%** of GDP for the upcoming year, down from the **4.4%** revised estimate for the current period. **Inflation Hits New Lows** A significant tailwind for the bond market is the sharp drop in retail inflation. India’s Consumer Price Index (CPI) inflation fell to **2.75%** in January 2026, marking the first reading under the newly revised 2024 base series. This print is well within the RBI’s medium-term target of **4%** and comfortably below the upper tolerance band of **6%**. The new CPI series has reduced the weight of food and beverages to **36.8%** from the previous **45.9%**. This structural change is expected to lower headline volatility, as the food segment—historically the most unstable—now has a smaller impact on the overall index. **Liquidity and Market Outlook** Liquidity conditions in the banking system are currently steady, supported by previous RBI interventions. The central bank recently injected substantial liquidity, including bond purchases worth **₹6.50 trillion** over the past year and significant foreign exchange swaps. The inclusion of Indian debt in global bond indices continues to support long-term foreign capital inflows. While the immediate focus remains on heavy state-level bond auctions—with states recently raising **₹486 billion** in a single week—the combination of low inflation and disciplined fiscal targets provides a stable foundation for the domestic debt market. [India Bond Yield Analysis](https://www.youtube.com/watch?v=fF-hXxjFuVs) This video provides an expert breakdown of the recent Union Budget fiscal math and explains why bond yields remain elevated despite broader economic stabilization. http://googleusercontent.com/youtube_content/0