India’s bond market remained staunch during the month, with the ten-year benchmark authorities bond yield easing by four basis aspects to shut at 6.49%, in accordance with the Mounted Profits Review by Axis Mutual Fund.
The tone in world markets used to be moreover supportive, as US Treasury yields drifted lower on rising expectations that the US Federal Reserve would protest a payment nick in its December policy meeting. The US 10-year yield ended the month at 4.01%, signalling a softening payment surroundings abroad.
The RBI’s December policy grew to alter into out to be the most consequential tournament for home mounted earnings. The Financial Coverage Committee lowered the repo payment by 25 basis aspects to 5.25% whereas preserving a neutral stance.
Axis Mutual Fund attributes this decision to a uncommon “goldilocks” aggregate of solid economic boost and exceptionally low inflation, even because the rupee weakened.
Liquidity cases within the banking arrangement remained tight over the month as a consequence of GST outflows and continued begin market operations, prompting the RBI to protest a series of liquidity infusion steps for December 2025.
These encompass ₹1 lakh crore of authorities securities purchases performed in two tranches, in conjunction with a USD/INR Purchase/Sell Swap value $5 billion for a three-year tenor. Together, these measures are expected to ease systemic liquidity pressures.
Inflation delivered an sudden shock, falling to 0.25% in October from 1.54% in September. Axis Mutual Fund notes that here is the bottom retail inflation print within the most contemporary CPI sequence, pushed by a favourable rotten carry out, moderating food prices and the affect of GST payment adjustments. Core inflation moreover softened marginally to 4.4%, reflecting a broader easing of payment pressures.
Financial boost figures added additional momentum to the macro narrative. Genuine GDP boost for the July–September quarter touched a six-quarter excessive of 8.2% year-on-year, boosted by a low rotten and the statistical affect of easing inflation.
Corrupt Cost Added moreover bolstered, rising to eight%, whereas nominal GDP boost remained largely stable at 8.7%. Meanwhile, US Treasury yields declined modestly, with weak labour market readings reinforcing expectations of another Fed payment nick in December.
Axis Mutual Fund believes that whereas the RBI’s payment nick used to be broadly anticipated, it moreover underscores the central monetary institution’s intent to make stronger boost amid an surroundings of benign inflation.
With 100 basis aspects of cumulative easing already delivered, the fund home notes that worthy of the length-pushed rally in bonds is now at the abet of us. The RBI’s dedication to asserting accommodative liquidity suggests a “lower for longer” payment of interest regime, however with itsy-bitsy room for aggressive future payment cuts. Which means that, the fund home expects the ten-year GSec to commerce interior a narrow band of 6.4% to 6.6% for the the rest of the monetary year.
Within the shut to term, market sentiment is most likely to be fashioned by a number of things, in conjunction with the trajectory of inflation, continued strength in economic boost, the RBI’s OMO purchases in December, and the attainable of Indian authorities bonds being included in Bloomberg’s world indices.
Such an inclusion could well presumably provide tactical alternatives for prolonged-bond investors, even supposing currency volatility and attainable world or home boost shocks live important risks.
Strategically, Axis Mutual Fund highlights that it has been reducing length in its portfolios since February 2025, though-provoking from prolonged-length suggestions in direction of accrual-centered portfolios.
The fund home has been emphasising investments in non eternal corporate bonds within the 2-to-5-year section, citing surplus liquidity, lower provide of corporate bonds and certificates of deposit, magnificent spreads, and a shallow payment-nick cycle.
It moreover expects immediate-tenor bonds to outperform longer-length devices from a threat–reward standpoint, especially because the market’s consideration step by step shifts in direction of authorities debt-to-GDP concerns.
Given this backdrop, Axis Mutual Fund continues to counsel immediate- to medium-term debt funds for investors, whereas asserting a tactical allocation to gilt funds.
The overall surroundings, fashioned by low inflation, staunch boost and supportive liquidity measures, aspects in direction of a stable yet selective system to mounted earnings investing within the months ahead.
