India’s 10-Year G-Sec Yield Projected to Reach 6.75-7.00% by March 2027: SBI Ecowrap

India’s 10-year Government Security (G-Sec) yield could settle in the range of 6.75 per cent to 7 per cent by March-end 2027, according to a recent report by the State Bank of India’s (SBI) economic research department (ERD) in its Ecowrap publication.

The ERD report attributes this projected yield range to two primary factors. The first is a 200-225 basis points (bps) spread over a US yield of 4.75 per cent. The second factor relies on a historical analysis of the spread between the Indian 10-year G-Sec and the repo rate, which indicates that a 100-bps spread between the two is the most plausible situation.

According to Soumya Kanti Ghosh, Group Chief Economic Adviser at SBI, a tightening monetary policy scenario—even with a 50 bps repo rate increase to 6 per cent—would still keep the yield within the 6.75 per cent to 7 per cent range by March 2027 based on historical analysis.

However, the report notes that a short-term flare-up reaching up to 7.6 per cent cannot be entirely ruled out. This potential spike is attributed to certain market players in India being caught off guard when yields previously topped 7.15 per cent to 7.2 per cent, leading them to currently cut their positions and aid a yield spike.

Presently, the 10-year G-Sec yield spread between India and the US hovers around 250 bps, with India’s yield at approximately 7.43 per cent and the US yield at 4.93 per cent. Past data since 2019 indicates that a spread of 200-300 bps remains the most likely scenario.

Regarding supply dynamics, ERD economists assessed an excess supply of G-Secs of approximately ₹1.52 lakh crore. In contrast, the ERD's demand-supply assessment for the US suggests a $304 billion excess supply of US treasuries, consistent with a US fiscal deficit at 6.15 per cent of GDP. The Indian government has already managed its borrowing program through bond switches and buybacks, reducing gross borrowing requirements by ₹1.23 lakh crore with potential for further cuts.

On US Treasury yields, the ERD observed that while yields have moderated from recent highs to around 4.9 per cent, underlying dynamics suggest they will remain elevated. Economists estimate US Treasury yields could settle around the 4.75 per cent level for some time, though a short-term blow-up to 5.25 per cent-5.35 per cent remains possible.

The report also touches upon currency projections, suggesting that the Indian rupee will maintain an appreciating bias as the Dollar Index weakens post-US mid-term elections. This expectation is tied to historical trends where Democrats, who may be favored by the mid-term verdict, follow policies of fiscal prudence.

"Macroeconomic indicators such as government security yields and currency movements directly influence the broader business and funding climate in India. While long-term projections by institutional research units like SBI Ecowrap offer valuable predictability for capital planning, businesses and financial stakeholders must remain agile to short-term yield volatility and global debt dynamics." — Dr. Shishir Gupta, Founder & CEO, StartupLanes