Ten‑Year Government Bonds May Outperform Five‑Year Amid Tightening

Analysts predict that the gap between five‑year and ten‑year Indian government bond yields will narrow as the RBI tightens liquidity. The five‑year benchmark, trading near 6.94%, could be pushed toward 7% if the central bank sustains a hard‑line monetary approach.

With the RBI withdrawing more than ₹1 lakh crore of excess cash, the short‑term segment faces added yield pressure, making the ten‑year note comparatively attractive. The spread may shrink to as little as ten basis points, and if overnight rates surge above the 5.25% repo, the curve could even turn slightly inverted.

The RBI’s three‑day Monetary Policy Committee meeting began Monday, with a decision slated for Wednesday. Although the repo rate stayed at 5.25%, markets remain focused on a potential first increase since February 2023.

SBI Research notes that the risk‑reward balance now leans toward a 25‑basis‑point rate hike, citing rising inflation, deteriorating global macro conditions, shifting liquidity, and fresh global risk assessments.