Designed for retail investors, this report provides focused insights into the fixed income landscape, covering developments in Indian government and corporate bond markets, fixed deposit comparisons from top banks, US bond movements, and global economic shifts.
FDs: Rates fall amid policy easing
In response to the Reserve Bank of India’s two consecutive repo rate cuts, each by 25 basis points in February and April, several banks have revised their fixed deposit (FD) interest rates downward. HDFC Bank, as of April 19, reduced FD rates by up to 50 basis points for select tenures. Under its revised structure, interest for deposits below ₹3 crore ranges from 3 per cent to 7.05 per cent for general customers, and 3.5 per cent to 7.55 per cent for senior citizens. The highest rate of 7.05 per cent applies to tenures between 15 to 21 months.
The State Bank of India (SBI) too followed suit, trimming select FD rates by 10 basis points from April 15. Its revised rates range from 3.5 per cent to 6.9 per cent across tenures from 7 days to 10 years. Senior citizens receive an additional 50 basis points across all durations. Notably, SBI’s special 444-day scheme, Amrit Vrishti, offers 7.05 per cent for regular customers, while senior and super senior citizens earn 7.55 per cent and 7.65 per cent, respectively.
Among small finance banks, Suryoday stands out, offering up to 9.1 per cent for senior citizens and 8.6 per cent for general depositors on a 5-year term. Non-Banking Financial Companies (NBFCs), such as Sundaram Finance and Shriram Finance offer better rates. Sundaram (AAA-rated) reduced its deposit rates by 25 basis points effective May 1, 2025, and now offers interest rates ranging from 7.2 to 7.5 per cent for deposit tenures between 12 and 36 months. Shriram Finance (AA+-rated) has lowered its rates by 40 basis points and currently provides returns between 7.39 per cent and 8.4 per cent for tenures of up to 60 months. Senior citizens can earn an additional 0.50 per cent, and women investors receive an extra 0.10 per cent per annum..
G-secs: Falling yields reflect easing inflation
Indian government bond yields have continued the downward trend throughout 2025, driven by expectations of policy rate cuts and a healthy demand-supply equation in g-secs. Since January, the yield on the 10-year benchmark government bond has dropped by about 50 basis points, settling at 6.28 per cent as of May 14, 2025. Similarly, the one-year yield declined by 76 basis points to 5.9 per cent, while the five-year yield fell by 77 basis points to 6 per cent during the same period.
Consumer price inflation has been on a downward path since October 2024 and recently dipped below the Reserve Bank of India’s (RBI) inflation target of 4 per cent. As inflation pressures subsided and concerns over economic growth surfaced, the Monetary Policy Committee cut the repo rate to 6 per cent. Additionally, in April, the RBI revised its policy stance from “neutral” to “accommodative,” indicating continued monetary easing. Supporting this outlook, the latest figures show that retail inflation in April fell to a six-year low of 3.16 per cent. These factors further reinforced expectations of a dovish policy approach and triggered a notable fall in bond yields.
In addition, a curtailed government borrowing programme and healthy FPI buying of Indian bonds also contributed to the g-sec rally.
Treasury Bills: Lower yields on surplus liquidity
Improved liquidity in the banking system has led to a notable decline in the cut-off yields of Indian Treasury bills (T-Bills) across all maturities — 91-day, 182-day, and 364-day — so far this year. Recent data show that the cut-off yields for these maturities are at 5.84 per cent. System liquidity has remained comfortably in surplus territory. At present, the banking system is estimated to have a liquidity surplus of about ₹1.37 lakh crore.
US Treasuries: Policy uncertainty and tariff tensions drive volatility
The US Treasury market experienced noticeable volatility in the first five months of 2025. One-year yields fluctuated between 3.8 and 4.3 per cent before stabilising at 4.1 per cent by mid-May. The 10-year benchmark yield initially declined to 4 per cent in April but later rose sharply to 4.46 per cent. This uptick was mainly attributed to inflationary fears stemming from President Trump’s aggressive tariffs on imports from China and Europe. In contrast, the 30-year yield saw a modest increase of 20 basis points, reaching 4.9 per cent.
Corporate Bonds: Yields decline while spreads widen
Corporate bond yields in India trended downward year-to-date. AAA-rated 10-year bonds saw a yield drop of around 40 basis points, settling at 6.9 per cent. Short-term (1-year) corporate bond yields declined even more sharply — by 59 basis points.
However, the spread between corporate bonds and government securities widened during this period. The 1-year AAA corporate bond spread increased from 90 to 101 basis points, while the 10-year spread rose from 30 to 53 basis points.
Fund Flows: Foreign investors buy as mutual funds exit
In terms of capital flows, mutual funds have been significant net sellers in the Indian debt market so far this year, offloading bonds worth ₹2.4 lakh crore. Conversely, foreign institutional investors (FIIs) turned net buyers, investing nearly ₹19,854 crore into Indian debt instruments, indicating subsequent global interest in India’s fixed income assets.
Published on May 17, 2025