Even after a sharp cut in June 2025, bond yields continue to climb. Borrowing needs, debt figures, and liquidity steps tell a different story.

Why are bond yields in India rising in 2024 and 2025 when the Reserve Bank of India (RBI) is cutting interest rates? This is the question echoing across treasury rooms and trading desks. A front-loaded rate cut was expected to reduce borrowing costs.

Yet the 10-year benchmark bond yield is moving higher. Market borrowing numbers from the Union Budget 2025-26 and debt projections for 2026 show why the relief from rate cuts has not reached government securities.

Rising Borrowing Needs Keep Pressure Alive

The Union Budget 2025-26, tabled in Parliament in July 2025, included the “Budget at a Glance” document. It showed that market borrowing plans continue to be heavy. The Revised Estimates for 2024-25 stood at ₹11.63 lakh crore.

For 2025-26, the Budget Estimates placed net market borrowing at ₹11.55 lakh crore. The Actual figure for 2023-24 was ₹11.07 lakh crore.

Fiscal Year	Market Borrowings (₹ lakh crore)	T-Bills Net Issue (₹ lakh crore)	Small Savings Securities (₹ lakh crore)
2023-24 Actual	11.07	–1.12	4.1
2024-25 RE	12	–1.20	4.12
2025-26 BE	11.54	0	3.43

The table shows that government borrowing needs remain high. Even if the numbers are steady, the supply of bonds in the market is large. This heavy supply keeps bond yields firm. Investors demand higher returns when borrowing calendars are large, even when interest rates fall..

Read More – How Interest Rates Affect Bond Prices and Yields?

Impact Of RBI Rate Cuts On Government Bonds

The Monetary Policy Committee of the RBI cut the repo rate by 50 basis points on 5 June 2025. This front-loaded step reduced the repo rate to 6.00 per cent. The RBI also cut the Cash Reserve Ratio (CRR) by 100 basis points to release liquidity into the system.

But the 10-year bond yield rose instead of falling. Data shows the yield climbed to 6.44 per cent by 14 August 2025. This was the highest since April 2025.

Date	RBI Repo Rate (%)	10-Year G-Sec Yield (%)	CPI Inflation YoY (%)
June 6, 2025	6	6.2	3.3
July 15, 2025	6	6	1.55
Aug 14, 2025	6	6.44	—

The table makes the gap clear. Inflation in July 2025 was only 2.00 per cent. But yields stayed firm. This shows bond markets are looking at borrowing levels and liquidity stance, not just inflation numbers.

Mixed Signals From RBI Liquidity Moves

The rate cut in June 2025 was meant to reduce borrowing costs. But the RBI soon restarted Variable Rate Reverse Repo (VRRR) auctions. These absorbed liquidity from the banking system. That action sent mixed signals to the market.

Operation	Action	Impact On Yields
Repo rate cut June 2025	–50 basis points	Brief fall, then climb
CRR reduced	Liquidity infusion	Neutral after VRRR
Variable Rate Reverse Repo (VRRR)	Cash absorption restart	Pushed short yields up

The table shows how the market reads the moves. Investors saw the liquidity absorption as a pause signal. They demanded higher yields before buying government bonds.

Reasons Behind Rising Bond Yields Despite RBI Action

The Receipts Budget Annex 9 published with Union Budget 2025-26 gives the debt stock position. Internal debt was ₹17.55 lakh crore at the end of March 2025. It is projected to touch about ₹19.01 lakh crore by March 2026. External debt is expected to rise from ₹6.18 lakh crore to ₹6.63 lakh crore over the same period.

As on Fiscal Year-end	Internal Debt (₹ crore)	External Debt (₹ crore)
March 31, 2025	17,55,989	6,18,296
March 31, 2026 (Est.)	19,01,000+	6,63,921

These numbers show a clear rise in debt stock. The size of internal debt is rising by more than ₹14 lakh crore in a single year. That supply of bonds keeps investors cautious. They know debt servicing costs will also rise. So even if the RBI cuts rates, heavy debt numbers keep yields firm.

Also Read - The Mechanics of Interest Rate Changes: How Central Banks Influence the Economy

How Policy And Market Interact

Bond yields are not just about repo rate cuts. They reflect borrowing size, fiscal deficit, and debt service needs. The Economic Survey 2024-25 pointed out that global bond yields are also elevated. That global backdrop adds to investor caution.

The RBI has planned debt management steps in 2025-26. These include buybacks and switches worth ₹2.5 lakh crore. The aim is to ease pressure at the long end of the curve. But even with such steps, traders remain watchful of weekly borrowing calendars, auction sizes, and fresh inflation trends.

Conclusion

Bond yields in India in 2024 and 2025 are rising despite RBI rate cuts. The reason is clear when looking at numbers from the Union Budget 2025-26 and Receipts Budget. Borrowing needs are heavy. Debt stock is rising fast. Liquidity moves are mixed. Inflation is soft, but the weight of borrowing and debt supply keeps the market cautious.

Front-loaded rate cuts in June 2025 did show strong intent. But the bond market responds to debt calendars more than policy signals. That is why yields continue to climb, even as the RBI cuts rates.

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