India’s sovereign bond market showed bearish sentiment despite the Reserve Bank of India’s (RBI) 25 basis point (bps) rate cut and market-friendly measures. Yields on 10-year G-sec rose by 5 bps as traders remained cautious due to liquidity deficit, geopolitical tensions, weak rupee, and foreign investor outflows, experts said on Saturday. Next week, major PSU issuers and state governments are set to tap the bond market with combined issuances worth over ₹32,000 crore. While PSUs plan to raise ₹14,000 crore through corporate bonds, states will auction securities worth ₹18,319 crore. However, market watchers caution that current conditions could impact spread levels and subscription rates. “Market participants remained on the sidelines, overlooking several market-friendly measures, including the introduction of future contracts, extension of NDS-OM access to Sebi-registered non-bank brokers for G-Sec trading, and the review of trading timings and settlement mechanisms,” said Venkatakrishnan Srinivasan, founder of Rockfort Fincap LLP. “The policy outcome failed to enthuse fixed income traders. The rate cut being already factored into bond valuations limited any positive price action in sovereign papers,” Srinivasan added. Mixed signals in bond market Despite RBI's rate cut spurring bond market activity among state-run firms, yields have risen as no additional liquidity measures were announced. While the rate cut aims to boost growth and reduce borrowing costs, investors remain wary due to inflation concerns. The new bond forwards initiative could enhance market efficiency, but its success hinges on future RBI policy decisions, as the market carefully weighs growth prospects against inflation risks, says another expert. Abhishek Bhatt, independent wealth manager and trader, says, “The RBI’s recent rate cut has ignited a surge in bond market activity, particularly among state-run firms eager to raise capital. “However, despite this uptick, bond yields have edged higher due to the central bank’s decision not to implement further liquidity measures.” For now, he says, the bond market remains under scrutiny as both investors and firms navigate the balance between growth opportunities and the risks associated with inflationary pressures. Rate cut impact clouded by economic headwinds RBI’s rate cut faces headwinds from high inflation, tight liquidity, and currency pressure. While aimed at boosting growth alongside tax reforms, its effectiveness remains uncertain due to banking constraints and macro challenges. “Liquidity in the banking system is severely constrained as reflected by the ₹60,000 crore open market operations (OMO) by RBI last week, 10-year high FD rates being offered by banks and pressure on the exchange rate,” says Nikhil Aggarwal, Founder Group CEO, Grip Invest. Heavy bond supply pipeline from PSUs and states PSU issuers plan to raise ₹14,000 crore through bonds next week, while states will auction ₹18,319 crore securities. “The corporate bond primary market activity is expected to gather momentum next week with several PSU issuers queuing up to tap the bond market. REC, EXIM Bank, IIFCL, and HUDCO are planning to raise up to ₹14,000 crore cumulatively through debt issuances,” Srinivasan said. He added that market uncertainty has clouded spread discovery as ₹18,319 crore state securities auction looms, and likely to affect yield patterns across the curve.Original Article