Fresh market borrowings for the govt getting pricier amid a tightening cycle

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The outstanding size of the existing 6.94 GS 2036 has already reached ₹2.38 lakh crore and it is likely the government may issue a new 10-year G-Sec soon

By K Ram Kumar

Updated - October 20, 2026 at 07:15 PM. | Mumbai

G-Secs yields have been going up since July 2026

With the secondary market yield of the benchmark 10-year Government Security (G-Sec) (6.94 per cent GS 2036) spiking to 7.40 per cent levels, and cut-offs at the weekly G-Secs auctions also rising in tandem since July 2026, fresh market borrowings for the government is getting pricier amid a tightening cycle.

Going by the prevailing secondary market yield (of 7.39 per cent) of the benchmark 10-year G-Sec and taking into account factors such as rising crude oil prices, US sovereign bond yields, geopolitical tensions, and possibility of more rate hikes by RBI’s rate-setting panel, it is likely the new 10-year G-Sec issuance will be at a coupon rate of 7.35 per cent to 7.50 per cent against 6.94 per cent on the on-the-run 10-year benchmark G-Sec, say bond market experts.

The outstanding size of the existing 6.94 GS 2036 has already reached ₹2.38 lakh crore and it is likely the government may issue a new 10-year G-Sec soon. Last year (2025), the government issued a 10-year paper (6.33 per cent GS 2035) on May 05, 2025. When the outstanding in this paper reached ₹1,83,374 crore, the goverment issued a new 10-year paper (6.48 per cent GS 2035) on October 06, 2025.

The RBI’s latest monetary policy report noted that the weighted average yield of issuances at 7.0 per cent in H1 (April-September 2026) was higher than 6.6 per cent in H1 (April-September 2025).

G-Secs yields have been going up since July 2026. For example, the cut-off on the on-the-run 10-year benchmark G-Sec (6.94 per cent GS2036) has risen from 6.7275 per cent at the July 03, 2026 weekly G-Sec auction to 7.3955 per cent at the October 16, 2026 auction, a jump of 67 basis points (bps). 

Venkatakrishnan Srinivasan, Founder & Managing Partner, Rockfort Fincap LLP, observed that the government bond market remains under pressure, with the cut-off yield on the 6.94 per cent GS 2036 rising to 7.3955 per cent on October 16 from 7.1450 per cent on September 25, a hardening of 25.05 bps in three weeks.

Inflation concerns

He emphasised that the 25 bps repo rate hike to 5.50 per cent (on October 7), expectations of further monetary tightening, elevated crude prices, inflation concerns and global bond-market pressures have weighed on the bond market sentiment.

“The rise in yields will increase the cost of fresh government borrowing. The published indicative RBI borrowing calendar provides for around ₹1.73 lakh crore of 10-year issuance between November 2026 and March 2027.

“The outstanding size of the existing 6.94 per cent GS 2036 has reached ₹2.38 lakh crore. So, issuance of a new 10-year benchmark is possible. If a new security is issued in the backdrop of prevailing yields, its indicative coupon could be around 7.35 per cent to 7.50 per cent, depending on market conditions and the government’s pricing decision,” Srinivasan said.

Axis Mutual Fund, in report, said the RBI may raise rates by an additional 50-75 bps in the near term, taking the operative rate towards 6.0-6.25 per cent.

Beyond that, the depth and duration of the tightening cycle will become increasingly data dependent, with key monitorables including the developments in the West Asia conflict, the trajectory of crude oil prices, global bond yields, domestic core inflation and the resilience of growth.

Published on October 20, 2026

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