Indian government bonds gained momentum this Monday, as the 10-year benchmark yield stabilized near three-week lows. The move reflects a broader cooling in global yields and resilient domestic liquidity, even as the market navigates long-term supply pressures. The 10-year benchmark 6.48% 2035 bond yield settled at 6.6670%, a slight decline from the 6.68% level seen in previous sessions. This steadying performance follows a period where yields slipped to their lowest levels in nearly a month, driven by strategic government debt management. Sentiment was bolstered by a significant drop in U.S. Treasury yields. The 10-year U.S. note fell to 4.05%, its lowest since November, following softer-than-expected inflation data. This has heightened global market bets on potential rate cuts, providing a supportive backdrop for Indian debt. Domestically, inflation remains a key driver. January’s consumer price inflation was reported at 2.75%, remaining well within the Reserve Bank of India’s 2% to 6% tolerance band. This benign inflation environment has allowed the RBI to maintain a neutral stance, recently holding the repo rate steady at 5.25%. Liquidity conditions in the banking system have stayed comfortable, with a daily surplus averaging approximately 70,000 crore. This follows aggressive open market operations (OMO) by the RBI, which conducted purchases amounting to 3,50,000 crore in the preceding months to ensure market stability. Despite the recent rally, some caution remains due to future supply concerns. The government recently conducted a debt switch, buying back 75,500 crore of bonds maturing in 2027 while issuing 69,400 crore of longer-dated 2040 securities. While this eased near-term redemption pressure, the market is bracing for a gross market borrowing target of 17.2 trillion in the next fiscal year. The fiscal deficit for the 2026-27 period is estimated at 4.3% of GDP, a slight reduction from the 4.4% projected for the current year. Investors are balancing this fiscal consolidation path against the increased interest burden and the need for the market to absorb a record volume of government paper. Short-term volatility may also stem from new regulatory measures. The RBI has introduced stricter collateral rules for proprietary trading firms, effective April 1. This move, aimed at curbing speculative leverage, is expected to raise capital costs for major market participants and influence overall trading volumes in the coming months.